Bail-out for SAA sends ‘the wrong message’

The Financial and Fiscal Commission has warned that the government’s decision to bail out struggling South African Airways could send the wrong message to the airline and other state-owned entities, which could create perverse incentives that undermine basic principles of fiscal responsibility.

The Financial and Fiscal Commission has warned that the government’s decision to bail out South African Airways (SAA) could send the wrong message to state-owned entities.

The commission has the responsibility to advise and make recommendations to Parliament, provincial legislatures and other organs of state on financial and fiscal matters.

On Wednesday, the commission briefed Parliament’s standing committee on appropriations on SAA’s debt-relief and recapitalisation plan. “Guarantees should not be taken for granted and become a default response position,” it said.

Finance Minister Malusi Gigaba said in his medium-term budget policy statement in October that the recapitalisation of SAA and the South African Post Office put the expenditure ceiling at risk of a breach to the tune of R3.9bn.

Total recapitalisation of R10bn will be provided to SAA in 2017-18. An amount of R5.2bn has already been provided, with the remaining R4.8bn to be transferred by March 31 2018.

SAA and the Post Office have both been in the throes of a financial crisis, which poses a serious risk to the fiscus.

The SAA bail-out was likely to increase the budget deficit and push back fiscal consolidation over the medium term, the commission said. Should the government follow through on plans to dispose of state assets to offset expenditure incurred, this would have a neutral impact on the budget, but the state’s balance sheet would still be negatively affected, it said.