‘Bring in the private sector’
WARNING: IF NOT, BAILOUTS AWAIT
Treasury’s forecast revisions for revenue too optimistic – expert.
An economist has warned that government must bring in the private sector to help or pay more bailouts and even more serious: find the money for further bailouts for the country’s ailing state-owned-entities.
South Africa will have to borrow a lot over the coming years and the country faces higher debt redemptions over the medium term, at a time when interest rates are high and revenue growth weak, Jee-A van der Linde, senior economist at Oxford Economics Africa, says.
“Treasury’s forecast revisions for revenue are too optimistic and its decision not to cut back on spending is regrettable, but not unexpected in an election year. In addition, South Africa’s tax base looks precarious, with just about three million taxpayers accounting for almost 90% of personal income tax.”
With nearly four times as many grant recipients (28 million in total, including roughly nine million Covid social relief of distress grant beneficiaries) as there are individual taxpayers in South Africa, government spending in general, as well as spending pressure associated with social support in particular, are expected to remain high over the coming years, Van der Linde says.
“Additional financial support to debt-laden state-owned enterprises [SOEs] will complicate matters further. Transnet fulfils a salient role in the economy and unless the private sector is roped in to get the utility back on track, a future bailout is likely.”
He warns that government has exhausted all the easy options, while the best ones – such as pro-business policy reform, increased private sector partnerships and fiscal consolidation – are politically sensitive. Further delays will impose costs on the economy and all South Africans.
South Africa’s fiscal ratios improved, thanks to the R150 billion in Gold and Foreign Exchange Contingency Reserve Account profits and after the Treasury raised its revenue forecasts.
However, Van der Linde says, the fiscal outlook is not much brighter, with economic growth too weak and recurrent spending too high. “Government’s high borrowing requirement, owing to Eskom debt relief and increased debt redemptions, suggests precious little is left for Transnet.
“A future bailout ultimately hinges on more private sector involvement as the utility tries to turn things around.”
The 2024 Budget did not contain debt-relief measures for Transnet after Treasury granted the embattled utility a R47 billion guarantee last year.
At the end of 2023, the board of Transnet issued a turnaround plan consisting of a R47 billion equity injection and R61 billion in debt relief, similar in style to the Eskom support package.
Van der Linde says Transnet’s underperformance holds direct financial implications for the fiscus due to the negative impact on corporate earnings and the tax derived from exports.