Award-winning economist Dawie Roodt said South Africans should not be fooled into believing that the days of bailouts for state-owned enterprises are over.
In his medium-term budget policy statement (MTBPS), Finance Minister Enoch Godongwana talked tough on failing state-owned enterprises.
He highlighted that the newly tabled Eskom Debt Relief Amendment Bill seeks to enhance the enforceability of the conditions agreed under the debt relief agreement.
“These principles and strict conditionalities are a key part of how we will deal with Eskom and other state-owned entities to avoid repeating the mistakes of previous bailouts,” he said.
The medium-term budget did not include bailouts for Transnet or any other state-owned enterprise (SOE) which asked for money.
There was also no indication of future bailouts, which many South Africans hoped signalled the end of supporting corrupt and mismanaged SOEs.
Roodt said the impression that there will not be further bailouts for failing state-owned enterprises is “just not true”.
“We have heard the same story many times before. There will be further bailouts. Transnet will get a bailout. Eskom will get more money,” he said.
He said there will be conditions associated with the bailouts. However, they will get money from the state whether they achieve all the objectives or not.
“If you don’t support Transnet and Eskom, the economy will collapse. You have to support them financially, whether they comply with the conditions or not,” he said.
He added that South African Airways, the SA Post Office, and other failing SOEs will get more money. “It does not matter whether they comply with the conditions,” he said.
A big challenge for the finance minister is that the country cannot afford to give billions to failing institutions.
Government spending has exceeded revenue since the 2008 global financial crisis, which puts it on the road to a fiscal crisis.
These rising annual budget deficits have reached an extent where the government will borrow an average of R553 billion annually over the medium term.
As a result, gross debt will rise from R4.8 trillion in the current financial year to R5.2 trillion in the next financial year. By 2025/26, it will exceed R6 trillion.
“We expect gross government debt to stabilise at 77% of GDP by 2025/26. This is higher than the level we forecasted in February,” the minister said.
Over the next three years, debt-service costs as a revenue share will increase from 20.7% to 22.1%.
Roodt said that although the finance minister said he has tabled an austerity budget, it is actually a highly expansionary budget.
“If you run a fiscal deficit of 5% to GDP, it is not indicative of a restrictive budget. It is very expansionary,” he said.