Expenditure ceiling in danger, Nene says
• Breach likely from recapitalisation of SOEs, while large public-sector wage hike adds danger
Finance Minister Nhlanhla Nene has cited the outcome of the public sector wage negotiations and the financial positions of state-owned entities as risks to the expenditure ceiling. /
Finance Minister Nhlanhla Nene has cited the outcome of the public-sector wage negotiations and the financial positions of state-owned entities (SOEs) as risks to the expenditure ceiling.
Breaches of the self-imposed expenditure ceiling are closely watched by credit ratings agencies as they are an indication of a lapse in fiscal discipline.
The ceiling is an instrument used by the Treasury to keep expenditure under control and to contain any widening of the budget deficit. It is a declaration of the state’s intent regarding its future expenditure plans.
The Treasury has emphasised that any settlement to the public-sector wage negotiations that increases salaries by more than consumer price inflation would make these expenditure limits difficult to stick to.
However, the public sector trade unions are demanding more than this.
Several major SOEs — such as power utility Eskom and national carrier South African Airways (SAA) — are mired in debt and face profitability and liquidity challenges. With government guarantees to SOEs standing at more than R430bn, the sector poses a risk to the government’s balance sheet.
In an address to Parliament’s standing committee on finance on Tuesday, Nene said: “We are building the future within very constrained public finances.”
Nene led a delegation of Treasury officials to brief MPs on the Treasury’s performance and strategic plans.
Ian Stuart, acting head of the Treasury’s budget office, announced that savings by the transport department meant the government did not breach the expenditure ceiling in 2017-18 as had anticipated at the time of the February budget.
Instead, there was an underspend of about R7bn on the main budget.
The Treasury expected that the expenditure ceiling would be breached by R2.9bn as a result of the recapitalisation of SAA (R10bn) and the South African Post Office (R3.7bn).
“What we had not anticipated at the time of the budget was a very large reduction in transfers from the Department of Trans- port to the Passenger Rail Agency of SA [Prasa] of ... [nearly] R5bn,” Stuart said.
This resulted in the government remaining within the expenditure ceiling for 2017-18.
Stuart said Prasa was sitting on a large cash surplus at the end of the third quarter and the transport department decided not to transfer the full amount budgeted for.
Deputy director-general Anthony Julies said the Treasury was working to reduce the guarantees provided to SOEs.
The Cabinet has approved a framework for private participation in SOEs, as well as a framework for costing of their developmental mandates, separate from their commercial mandates.