Parastatal bailouts will have us downgraded, DA warns | Fin24

Parastatal bailouts will have us downgraded, DA warns

Aug 12 2018 15:00
Khulekani Magubane

The Democratic Alliance on Sunday warned that reported Cabinet moves afoot to give government guarantees to struggling state owned entities to the tune of R59bn would leave the country staring sovereign credit rating downgrades in the face.

Over the weekend Sunday Times reported that government was considering bailouts for distressed state-owned companies such as the South African National Road Agency, South African Airways and the South Africa Broadcasting Corporation.

The opposition is also looking to have Parliament’s Standing Committee on Finance call and urgent meeting the relevant units of National Treasury to discuss the state of sovereign liabilities and which state-owned companies have asked for bailouts.

These reports fly in the face of remarks from high ranking National Treasury, including former minister of finance Malusi Gigaba, saying that the days of government bailouts for underperforming parastatals were over.

DA MP Alf Lees said in a statement on Sunday evening that these bailouts will worsen the country’s precarious debt levels and negatively impact South Africa’s national sovereign ratings.

“Cabinet’s argument that a SANRAL default will affect sovereign ratings is flawed because a government guarantee of R59bn will increase the state’s debt liabilities to 60% of GDP, which is sure to induce a sovereign credit downgrade,” said Lees.

Lees said he would write to Standing Committee on Finance chair Yunus Carrim, to request a meeting with the Fiscal Liability Committee and the asset and liability management unit of the National Treasury to discuss full extent of sovereign liabilities and all applications for government guarantees.

“The (elephant in the room is the) contingent liability in the form of Eskom debt and government guarantees that, according to the Eskom corporate plan, will increase from R235bn to R600bn over the next three years,” said Lees.

So far this year, the largest sovereign credit rating agencies - S&P and Moody’s – have given South Africa a reprieve from years of mismanagement of the country’s state owned enterprises. Fitch maintained South Africa's status at junk in June.



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