South African taxpayers paying billions to help struggling state-owned enterprises

Despite promises of stabilising South Africa’s state debt burden in the 2025/26 fiscal year, the country’s gross debt-to-GDP ratio is expected to edge higher.

The state’s contingent liabilities are also expected to rise following Transnet’s latest R95 billion guarantee facility, bringing total government guarantees to R534 billion or 8.8% of GDP.

Transnet’s latest government guarantee marks a continuation of a decades-long trend of taxpayers needing to bail out mismanaged and failing state-owned enterprises (SOEs).

Investec treasury economist and fixed income specialist Tertia Jacobs recently outlined what South Africans can expect from Finance Minister Enoch Godongwana’s Medium-Term Budget Policy Statement (MTBPS).

The MTBPS, sometimes referred to as the ‘mini-budget’, will provide an update on the National Treasury’s May Budget on 12 November 2025.

Jacobs said much has changed since the start of 2025 when the Budget was tabled, with significant volatility throughout the year.

For South Africa, economic conditions have softened since the start of the year, with 2025 GDP growth expectations revised down from nearly 2% to 1.2%. 

However, Jacobs pointed out that tax revenue performance has outperformed expectations, supported by stronger commodity prices, particularly in precious metals, which, in turn, will boost mining tax receipts. 

She said the macroeconomic policy framework has also been strengthened by the Reserve Bank’s preference for inflation to be anchored around the lower end of its 3% to 6% target band.

This preference has contributed to lower inflation, lower government bond yields and reduced debt-service costs.

The May Budget revealed that the state’s debt burden stands at around 77.4% of GDP, with the government spending around R1.2 billion a day to service this debt.

Godongwana, as with nearly every national budget since 2009, said earlier this year that the government plans to stabilise South Africa’s debt burden in the 2025/26 fiscal year.

The Finance Minister said government debt will stabilise at 77.4% of GDP, aided by a planned primary surplus, which will reduce rising debt-service costs. This plan can be seen in the graph below.

Bailouts

While the Treasury projected state debt will stabilise in 2025, Jacobs said the government’s gross debt-to-GDP ratio is projected to edge higher, from 77.4% to around 78.3% of GDP.

She attributed this to slower nominal GDP growth, as well as switch auction activity and prefunding. 

Jacobs added that the state’s contingent liabilities will also rise following an increase in Transnet’s guarantee facility by R95 billion earlier this year.

Transnet’s latest facility brings total government guarantees to R534 billion, or 8.8% of GDP.

This is only the latest in a decades-long trend of the government needing to bail out struggling SOEs.

Eskom is one of the most prominent examples of government bailouts, having received R496 billion in bailouts since 2008/9.

A 2024 presentation to the Standing Committee on Appropriations revealed that, over the past decade, requests for bailouts and debt takeovers have cost the fiscus R520.6 billion.

Over that period, national, provincial and local government baselines have been reduced by an accumulated R457 billion.

Concerningly, spending on infrastructure and essential goods and services took the brunt of this baseline adjustment, directly impacting service delivery across the country.

For years, Godongwana has raised the alarm about this growing burden, saying the state cannot afford to keep bailing out struggling SOEs.

In 2022, he told the National Assembly that state-owned companies must develop and implement sustainable turnaround plans.

“We need to stay vigilant and mitigate the risks where possible. In the upcoming period, we will do more work to strengthen fiscal anchors,” he said. 

“We will also reduce the continual demands on South Africa’s limited public resources from state-owned companies.”

However, many experts have been sceptical about the Treasury’s ability to stop extending guarantees to SOEs.

Earlier this year, Coronation’s head of fixed interest, Nishan Maharaj, said the government’s debt burden is expected to keep growing due to unaccounted-for items that continue to weigh on government expenditure. 

This includes further support for SOEs – Transnet more immediately and an increasing probability for Eskom if higher tariffs are not granted or municipal debt is not repaid.