Government hiding the truth about SOE bailouts 

The South African government is not recording its interactions with state-owned enterprises (SOEs), particularly its their bailouts, in line with international standards and guidance. 

This was revealed by the International Monetary Fund (IMF) in its Fiscal Transparency Evaluation Report for South Africa. 

At the request of the National Treasury of South Africa, a team from the IMF’s Fiscal Affairs Department undertook a Fiscal Transparency Evaluation from July 11 to 25, 2023.

The IMF had extensive meetings with senior staff of the National Treasury, including deputy director generals Edgar Sishi and Duncan Pieterse.

Its report said that despite the serious governance issues relating to state capture and widespread corruption, the National Treasury has consistently been transparent in its reporting and maintains rigorous oversight of public finances. 

In particular, the IMF praised Treasury for its comprehensive, relevant, timely, and reliable overview of the government’s financial position and performance. 

However, despite the National Treasury being the world’s second most transparent fiscal authority, the IMF sharply criticised its dealings with SOEs, particularly how it reports on the bailouts of these companies. 

“South Africa’s 2023 budget reports are not in line with international guidance when reflecting the impact of bailouts as they show it as equity investments,” the report reads. 

The government has bailed out state-run companies to the tune of R331 billion since 2013, this excludes Eskom’s massive R254 billion debt relief plan, which is currently underway.

South Africa’s SOEs are concentrated in essential and strategic sectors and have faced financial difficulty over the last decade, requiring several interventions from the national government, often through capital injections, bailouts or guarantees.

In some cases, an intervention made by the government may provide additional returns in the future. In other cases, there may not be a return at all. 

The IMF said bailouts typically do not result in a return for the government in the same manner as other investments and would usually be considered a capital transfer, which is a deficit-impacting transaction.  

“Therefore, it is important to ensure that the economic reality of the interventions is reflected accurately in fiscal reporting by following international guidance,” it urged. 

Another issue besides the financial reporting on the bailouts of SOEs is the lack of financial statements for these companies. 

The lack of timely financial statements from SOEs means they cannot be used to inform policymakers and the public about the financial health of these companies. 

This limits the scope for corrective action as people simply do not know what is going on at some SOEs. 

“It should be noted that the audit process allows the financial information to be used to inform policy discussions since the audit process includes engagement with the auditee, its oversight entity and ministries during the audit process,” the IMF said. 

“The audit results are, therefore, used as an instrument to report to the executive on the stewardship of public funds.”

“Timely reporting on any irregularities in the use of public funds could ensure that swift action in the following budget cycle is taken to remedy any irregularities.” 

It suggested that the government, while improving the speed of financial reporting, consider publishing provisional financial statements to inform new policies or strategies prior to the creation of a new budget. 

The decline in the percentage of financial statements published within the legislative time frame is shown below, with less than half of audits completed on time.