Cape Town – Although guarantees to South African Airways (SAA) make up only 2.3% of government’s total contingent liabilities, the parastatal is in a poor financial state and therefore careful oversight over its affairs is necessary, said Rashaad Amra from the Parliamentary Budget Office on Tuesday.
The Parliamentary Budget Office briefed Parliament’s finance committees on Tuesday ahead of the Medium-term Budget Policy Statement which will be tabled on Wednesday.
During the briefing, government’s contingent liabilities in terms of state-owned enterprises were identified as one of the most glaring risks for fiscal stability in the country.
Ratings agencies Moody’s, Standard & Poor’s and Fitch have in the past year consistently singled out government financially distressed parastatals as reasons for the country’s credit ratings downgrades.
In April, S&P and Fitch downgraded South Africa’s sovereign credit rating to sub-investment grade (also known as junk status), while Moody’s downgraded the country’s rating by one notch, but kept it at investment grade.
The Budget Office’s Amra on Tuesday said although SAA’s guarantees are relatively modest compared to other state-owned entities, such as Eskom, which stood at R254bn of guarantees at end-March, the airline’s poor financial state of affairs poses a significant risk.
“If SAA’s government guarantees are called upon, or if the airline defaults on its debt and the state does not intervene, other SOE debt can be called upon,” Amra cautioned.
He echoed similar sentiments expressed by Finance Minister Malusi Gigaba who earlier said that National Treasury had no choice but to bail out the ailing airline.
In June and September respectively SAA received a total of R5.2bn emergency funding when two lenders had refused to extend their lending periods to the airline.
Had SAA been allowed to default on its debt, it could have had a domino effect in that other SOEs could have been forced to pay back various lenders, Gigaba said. This in turn could have meant that R250bn-plus of state guarantees could have been triggered.
Besides contingent liabilities, the Parliamentary Budget Office on Tuesday also pointed to poor economic growth, a revenue collection shortfall, political and policy uncertainty and public wage pressures as sources of fiscal risks in the country.
These risks however can be mitigated by expanding the tax base, reprioritising expenditure and reassessing South Africa’s borrowing levels.
During question time, members of the committees wanted to know which tax proposals the Budget Office had in mind, but officials did not want to elaborate on the matter.
Although the MTBPS usually does not pronounce on tax proposals, Gigaba is expected to give some hints as to what can be expected in the main budget in 2018. South Africa's revenue shortfall for the 2017/18 financial year could be as much as R50bn.
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