State-owned enterprises (SOE) “must jack up their own capacity” and bring in the private sector if they want to receive bailouts from the state to boost their ability to invest in public infrastructure, finance minister Enoch Godongwana said on Wednesday after a medium-term budget in which he granted Transnet, Sanral and Denel a total of R33bn to repair their ailing balance sheets.
The minister took advantage of a revenue overrun of R106bn and much better-than-expected deficit and debt figures to allocate cash to the SOEs, as well as to lift government spending on economic infrastructure and law enforcement.
He also kept the lid on spending, using almost two-thirds of the revenue overrun to reduce debt, while budgeting for a below-inflation increase in expenditure overall.
The medium-term budget, which sees the government stabilising its high debt two years earlier than expected in February and at a lower level, was widely welcomed by the market. There was disappointment, however, that the minister did not provide details of the promised debt-relief package for Eskom, other than to say the government would take over between one-third and two-thirds of Eskom’s R400bn debt and would detail this in February after engaging with lenders.
Godongwana also said that Transnet, which received R5.8bn, is likely to need more cash in future and that the Gauteng government will have to decide on the future of e-tolls now that the government has “closed” out on Sanral debt with a R23.7bn bailout.
“While we are still giving state-owned enterprises some support, the extent of the transfers of money to bailouts is declining and we are beginning to focus deliberately on front-line services such as health, education and police as well as on infrastructure,” the minister said.
But the bailouts, and the comments in his speech on the critical role of SOEs in delivering public investments to support higher growth raised questions about whether the government remains committed to bringing private sector investors in to enable investment in sectors such as transport and electricity.
Godongwana said, however, that any bailouts would come with “conditions precedent”. Transnet is choking the economy and causing the government to forego revenue because of its inability to transport mining output to port.
The government would more than recoup the investment it made in Transnet, which would have to “get its act together”, and would need further allocations to invest in infrastructure, along with the private sector, he said in an interview in Cape Town.
Sanral had an even better case for support, the minister said, because its debt woes were no fault of its own but resulted from political opposition to e- tolls. Government would take over responsibility for 70% of the road agency’s R47bn of guaranteed debt, with the Gauteng government taking the other 30%. The debt largely relates to the Gauteng Freeway Improvement Project, which costs R3bn a year to maintain.
Though the new Gauteng premier, Panyaza Lesufi, told radio shows that e-tolls would go, Godongwana said the province would have to work out how to fund the maintenance costs. “From our side now we have nothing to do with e-tolls,” the minister said.
The Treasury now expects economic growth to average just 1.6% over the three years of the medium term and it warned of global headwinds. But the huge revenue overrun and restrained spending growth, particularly on public sector wages, have enabled Godongwana to project the first primary fiscal surplus for 15 years, with revenue exceeding noninterest spending in the current fiscal year and over the medium term.
The deficit is now expected to come in at 4.9%, versus February’s 6% estimate. The gross debt ratio is expected to stabilise in the 2022/2023 fiscal year at 71.4%, whereas the February budget expected it to stabilise at 75% only in 2024/2025.
“Fiscal consolidation will soon come to a close,” the Treasury said in budget documents.
Getting the debt burden under control is seen as crucial given that the government spends an average R355bn a year on servicing its debt. Godongwana said the government is spending almost R1-trillion just on debt costs and the public sector payroll.
But with public sector wage talks still unresolved, he pencilled in a 3% increase for the current year and no increase for the next fiscal year. And while he extended the R350 a month social relief of distress grant for a further year to March 2024, the government has not yet made a decision on a replacement.
The consolidated spending budget will increase by an average 2.5% over the medium term, excluding debt costs. Spending on economic infrastructure has been elevated to the fastest-growing item on the budget. Treasury officials said this was a deliberate choice to stimulate growth and support the construction industry.
Ratings agency Moody’s said: “SA’s medium-term budget policy statement reaffirmed the country’s commitment to fiscal consolidation.” But it added that it forecast growth of only 1%-1.5% over the next few years, in part due to infrastructure challenges.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.