State-owned enterprises (SOE) will have to jump through hoops henceforth in order to receive government bailouts as contingent liabilities are expected to exceed R1 trillion by 2024/25.
This was a stern message from Finance Minister Enoch Godongwana yesterday as he tabled his Medium-Term Budget Policy Statement (MTBPS) in Parliament.
This comes as the National Treasury has begun developing a state-owned companies funding framework which will be finalised before the end of this financial year.
The framework will complement the Presidential State-Owned Enterprises Council draft framework to guide decisions on disposing of and retaining state-owned companies.
Godongwana said that the financial condition of many SOEs remained weak, with some having difficulty meeting their funding requirements because of their low credit quality.
He said that the government will continue to enforce minimum criteria before guaranteeing the debt of state-owned companies.
“Fiscal support to state-owned companies remains a challenging balancing act given the many competing priorities and limited resources,” Godongwana said.
“Funding to SOEs will now come with strict pre- and post-conditions. Pre-conditions mean that SOEs will need to comply with these conditions before they receive government support, not after. Non-compliance to conditions means no funding.”
According to the MTBPS documents, the minimum criteria for the consideration of guarantee requests require SOEs to demonstrate their ability to service debt that would be acquired using the guarantee.
In the 2021/22 financial year, no guarantee requests that met the minimum criteria were received, so no new guarantees were issued and the volume of the exposure declined as a result.
However, as some of SOEs represent critical components of economic activity, especially in transport, engineering and energy, Godongwana said the government had little choice but to act to keep these key services running.
As a result, Godongwana proposed to use higher-than-anticipated revenues in the current year to reduce risks from specific SOEs.
Revenue collection has exceeded projections across most major tax categories since the 2022 Budget, with the gross tax revenue estimate for 2022/23 revised up by R83.5 billion due to better-than-expected collections in the final quarter of 2021/22.
“These resources cannot be used to fund baseline increases as they are once-off. Using them in this way will also not expand the fiscal deficit compared to our existing medium-term plans,” Godongwana said.
“The financial support to SOEs recognises their potential to contribute to our long-run growth prospects.”
Godongwana tabled a Special Appropriation Bill to provide a combined R30 billion additional funding to Denel, Transnet and the SA National Roads Agency in a bid to allow these entities to adjust their business models and restore their long-term financial viability.
In addition, the government said it would increase the size of the contingency reserve over the next two years to improve responsiveness to emergencies such as natural disasters.
The Treasury said funds would be set aside for the unallocated reserve as a buffer against other fiscal risks that may materialise in 2024/25 and 2025/26 financial years.
North-West University Business School economist Professor Raymond Parsons said the MTBPS offered realistic policy trade-offs in the light of the existing economic constraints.
“In particular there was welcome emphasis in the MTBPS to the commitment to expanded infrastructural investment… and the fact that further financial assistance to SOEs like Eskom and Transnet will be hedged with strong conditionalities,” Parsons said.
“Structural challenges require structural remedies, which include a much larger role for the private sector in finding solutions, especially in the energy and transport fields.”
BUSINESS REPORT