Barbara Curson, Moneyweb
4 minute read
3 Jun 2019
7:16 am

SA’s mountain of debt obscures ‘new dawn’

Barbara Curson, Moneyweb

Since Ramaphosa announced government’s economic stimulus and recovery plan seven months ago, investor confidence has not been reversed nor corruption halted.

South Africans celebrate President Cyril Ramaphosa's inauguration at Loftus Versfeld Stadium in Pretoria on Saturday, 25 May 2019.

After the euphoria of the swearing in of the new cabinet – a reality check on the dire situation of South Africa’s fiscal woes.

National Treasury recently quietly released the statements of government revenue, expenditure and borrowings for April 2019, the first month of the 2019/20 fiscal year. This came without explanation or attempts to identify any highlights. There weren’t any. The state of affairs for April is dismal.

Revenue is up 6.65% to R73.8 billion on April 2018 (R69.2 billion). But 2018/19 set a very low base. April 2019 revenue fell some R43 billion short of the R116.9 billion budgeted amount for April 2019. Treasury did not provide the April 2019 budgeted amount in the statements, so I merely divided the total annual budget by 12. Corporate taxes, value-added tax (Vat) and import duties are down considerably. The South African Revenue Service (Sars) will be under a lot of pressure this year.

The April performance is further negated by the massive 21.6% increase in expenditure to R137.4 billion (April 2018: R112.9 billion).

Eskom a ‘financial asset’

The increase in expenditure can be attributed to the “Payments for financial assets” of R13.6 billion, which included the payment to Eskom of R13.5 billion in terms of section 16(1) of the Public Finance Management Act (PFMA). “Payments for financial assets” is in my view a misnomer, and we can only hope that Eskom includes it as a liability and not an asset. Unless government intended it as a free handout?

We shouldn’t forget that the purpose of section 16(1) is that “The Minister may authorise the use of funds from the National Revenue Fund to defray expenditure of an exceptional nature which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future parliamentary appropriation of funds.”

Does the Eskom bailout constitute “expenditure of an exceptional nature”? Not in my book.

The 2019/20 budget includes an amount of R23 billion, which is termed “Eskom restructuring”, and a contingent reserve of R13 billion. Is this contingent reserve set aside to pay for “emergencies” arising in other state-owned enterprises (SOEs)? It is to be noted that SAA has still not managed to publish its March 31, 2018 annual report, and one can only imagine the horrors lurking in the figures. This is not the only SOE in contravention of the PFMA – Coega and Safcol have also not published their 2018 annual reports. SOEs that may require bailouts in 2019/20 include Eskom, SAA, the SABC and Denel.

The April net deficit of R63.5 billion (Budget 2019/20: R255.2 billion) is funded with debt as shown below:

The budgeted interest cost for the fiscal year is R202.1 billion, and the actual cost for April was R3.6 billion.

Where do we go from here?

Treasury issued a media statement on May 24 “noting” Standard & Poor’s decision to affirm South Africa’s long-term foreign currency debt rating at [non-investment grade] BB and local currency debt rating at BB+. S&P expects government to focus on new policy initiatives that will “support firmer growth and reform SOEs”.

Seven months and counting

President Cyril Ramaphosa announced government’s economic stimulus and recovery plan on September 21, 2018. Seven months later, investor confidence has not been reversed nor corruption halted. We are only beginning to see the true impact of state capture through the various commissions. Good governance at SOEs is yet to be restored and critical public institutions strengthened. Perpetrators are still to be charged.

It is unlikely that Sars will be fixed in the short term. It has been hollowed out and some of those who helped to destroy it (or turned a blind eye) are still there. The SOEs are out of control, and until they publish their 2019 results no one will have a clear idea of the funding they require to keep afloat, nor how much money has been spirited away in the common misdemeanours comprising procurement malpractices and irregular and wasteful expenditure.

In the days prior to Treasury publishing the April 2019 government figures, our minister of finance was cooking up a storm in his kitchen, tweeting: “Now we introduce onions, green pepper and garlic. Mix and the slow cooking goes on. Cooking needs time. It’s like drawing up the National Budget. Time and patience!!” Perhaps he has a plan to conquer our rising mountain of debt and wayward SOEs …

The new dawn is faltering.

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