The Treasury's transfer of funds to SAA this week could add to toxic conditions that could lead to another credit rating downgrade, economists warned on Friday.
The transfer of R3-billion to SAA from the National Revenue Fund to save it from defaulting on a loan with Citibank means that in the last two months the Treasury has advanced a total of R5.2-billion to the ailing airline. In June SAA urgently requested R2.2-billion to repay Standard Chartered Bank after it refused to roll over SAA's debt.
The Treasury said on Friday that of the funds transferred, R1.8-billion was to settle the Citibank loan and the balance was earmarked for working capital, but it would not elaborate, except to say: "All other details will be contained in the Medium Term Budget Policy Statement on October 25."
Iraj Abedian, CEO of Pan African Investment and Research Services, said: "It is very loose fiscal management because you cannot pay money under any circumstances to an organisation that has got no credible board, no credible business strategy."
Abedian said it was not new to use the excuse that if the Treasury had not intervened by Friday, SAA would have defaulted, which would have triggered a call on loans to SAA of R16.4-billion, which the government had guaranteed. "For anybody to put money into it, it is clearly fiscally problematic, if not irresponsible," he said.
"The bigger risk is that when the National Treasury next time sits across the room from Moody's and from other ratings agencies they have absolutely nothing to defend, they are destroying their own credibility and setting the country up to be downgraded."
Ratings agencies will review the government's credit ratings in November.
Peter Attard-Montalto, emerging-markets economist at Nomura, said while the decision was no surprise it was a "sign of serious moral hazard. The message to banks is that there is no point in rolling [over loans] unless you are a local bank with politics breathing down your neck."
He said in the current economic environment banks were likely to roll over debt at shorter tenor and higher rates with harsher repayment covenants.
SAA spokesman Tlali Tlali did not immediately respond to a request for comment on working capital requirements.
Razia Khan, chief economist for Africa at Standard Chartered Bank, said: "The fact of the intervention will not in itself trigger a downgrade." But she added: "Unless the Treasury can put in place meaningful corrective action soon, reassuring [ratings agencies] on the running of SOEs as well as public finances, it is difficult to see how South Africa, on its current trajectory, can avoid further downgrades."
Attard-Montalto predicts when the medium-term budget is delivered on October 25 SAA will be allocated another R5-billion.
John Ashbourne, Africa economist at London-based Capital Economics, said if there was a belief that the government was responsible for all of the debt of SAA "as we move closer and closer towards a bigger bailout, that would be a concerning figure".
SAA said it would cut back on flights to local and regional destinations to trim costs.
Patrick Bond, Wits School of Governance professor of political economy, said: "Setting aside ... SAA's mismanagement, the most intense pressure is obviously coming from international finance ... Since the debt crises and hard currency shortages are biting in Angola, Nigeria and Zimbabwe, SAA's ability to repatriate profits is limited."
New CEO Vuyani Jarana would start at SAA on November 1, the Treasury said.
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.