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Pretoria - Struggling state enterprises’ reliance on government guarantees as well as credit downgrades dampened South Africa’s risk profile, as it struggled with rising borrowing requirements.
Treasury’s latest budget review showed that there were grave concerns about the burden struggling state enterprises such as Eskom was putting on the fiscus and the government’s contingent liabilities.
Eskom, independent power producers and the Road Accident Fund account for the majority of government’s contingent liabilities.
Government guarantees, where the South African government commits to take responsibility for a loan in the event of default, dogged Treasury last year.
While enabling state enterprises such as Eskom to access funding that would otherwise be unavailable, or to borrow at a lower cost, it created significant risks to the government as a high level of contingent liabilities can lead to a higher risk premium on sovereign debt.
Therefore there was a new commitment from Treasury to reduce guarantees as part of its efforts to maintain prudent levels of liabilities.
“Guarantees to some state-owned companies remain a major risk to the fiscus,” Treasury stated.
Eskom, SAA, the South African Post Office and Denel all required guarantees or recapitalisation during 2017/18, lessening South Africa’s reserves.
Finance Minister Malusi Gigaba said in his budget speech that South Africa’s limited fiscal room made him unenthusiastic to use government funds to subsidise inefficiency.
He told South Africans that government was aware that the business models of some state enterprises were unsustainable, and their capital structures too reliant on debt.
“Government is finalising a framework on guarantees aimed at both reducing the exposure and improving the quality of the guarantee portfolio,” Gigaba said.
In a media briefing before his speech, Gigaba also said while there were enterprises that still needed support, it was an ongoing discussion about the “quantam” of the support, recaptilisation must come to an end.
He said government guarantees should fund capitalisations projects, not operations as was currently the case.
Another risk, legal claims against government departments, are estimated at R35bn, while obligations for the Road Accident Fund have increased by R9.7bn to R189.2bn.
Treasury also expected losses of R135m on its Gold and Foreign Exchange Contingency Reserve Account, the government’s largest contingent asset.
“Due to the appreciation of the rand, unrealised gains are expected to amount to R209.4bn by end-March 2018, a decline of R21.8 billion compared with 2016/17,” Treasury stated. “In 2017/18, government settled a realised loss of R225 million.”
- Visit our Budget 2018 Special for all the news, views and analysis.
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