South Africa’s finance minister in “very deep trouble”

Renowned economist Dawie Roodt warned that South Africa’s debt levels have reached alarmingly high levels and that the government must guard against a financial crisis.

Roodt warned about the country’s finances during a discussion on SABC News about government bailouts to struggling state-owned enterprises (SOEs).

Transnet recently asked the government for financial support, which is essentially a bailout, to implement its turnaround plan.

Transnet said its board would discuss the plan to address its estimated R130 billion debt with the Public Enterprises and Finance Ministries.

The request followed the National Treasury’s decision to take over R254 billion of Eskom’s unsustainable R423 billion debt.

It laid the foundation for other state-owned enterprises to also ask for debt relief, of which Transnet was the first.

Roodt warned that it would be risky for the government to entertain such requests as the state’s debt levels have reached alarmingly high levels.

South Africa’s fiscal deficit – the difference between total revenue and total expenditure – will reach around 6% of gross domestic product (GDP) this year.

This means that South Africa’s debt-to-GDP ratio for the current financial year, which is set to end in March 2024, will increase to over 75%. The next year, it will increase to 80%.

“Everybody is going to the finance minister and asking him for more money, but the reality is that he is in very deep trouble as well,” Roodt said.

He highlighted that if you put the state-owned enterprises’ debt with that of the state, the pressure on the national government will be so huge that we are heading for a financial crisis.

“It is not only Transnet or Eskom. It is also the local authorities, Denel, the SA Post Office, and the national government’s fiscal position,” Roodt said.

“The problems are getting bigger by the day, and the government is not recognising the danger and trouble that they are in.”

Bailout request comes at the wrong time

Roodt’s concerns are echoed by the Bureau for Economic Research (BER), which warned that Transnet’s request for a government bailout comes at an inopportune time.

It said the government grapples with multiple spending pressures and a revenue squeeze, which, on balance, necessitates some consolidation from the National Treasury.

“The request is also at a time when a lot of background policy work is being done on suggestions to improve Transnet’s poor operational performance,” the BER said.

This is led by Operation Vulindlela, a joint initiative between the Presidency and Treasury to unlock the binding constraints on South Africa’s growth.

The BER said the recommendation of greater private sector participation in South Africa’s railway and port operations is a positive step.

“Indeed, a key proposal is for Transnet to concession the running of the key coal and iron ore railway lines to private sector operators,” it said.

The overarching suggestion is to move away from the current situation where Transnet is both the owner and the operator of the rail and port network.

Former Statistician-General of South Africa, Pali Lehohla, also said bailing out state-owned enterprises is not the right decision.

“There is something far more fundamental that must happen at the SOEs than just throwing money at them,” he said.

“At the current rate and with the current architecture of conception of the state-owned enterprises, there is something fundamentally wrong.”