When the Cabinet meets within the next two weeks, ministers will be asked to make more budget cuts in crucial service delivery programmes. This will be over and above the departmental budget cuts of at least 20% that were pencilled into the June supplementary budget.
Budgets that were slashed in June include, among others, building schools, support for maths and science initiatives in basic education, provincial road maintenance, allocation of human settlements to the poor, the land reform and rural development programme and allocations towards SA’s gender-based violence crisis.
Further cuts in similar areas are expected, including in President Cyril Ramaphosa’s state-funded initiatives to create jobs. Ministers won’t be asked to cut budgets again because they suddenly believe in fiscal prudence during the Covid-19 pandemic. But they will be asked to reprioritise funds to save SAA, an unproductive state-owned airline.
SAA requires R10.4-billion to fund the implementation of its business rescue plan, which proposes paying unsecured creditors nearly R2-billion over three years, retrenchment packages worth R2.2-billion to 2,000 workers, and funding the restart of the airline’s flights in January 2021.
Without this funding, the SAA business rescue practitioners would declare that the airline has no prospects for rescue, paving the way for its liquidation and death.
By the end of Friday 25 September, the rescue practitioners required a firm commitment from the Department of Public Enterprises (the sole shareholder of SAA) and the National Treasury, that funds for the airline would flow from the fiscus. This commitment should also be backed by the Cabinet and its demonstrable plan that money for SAA will come from cuts in the budget.
It will then be left to Finance Minister Tito Mboweni and the Treasury to crunch the numbers and make allocations to SAA in the October Medium Term Budget Policy Statement (MTBPS). The MTBPS is an update of the main February budget and sets out three-year budget allocations.
But the rescue practitioners have not yet received a firm commitment from the government about funds for SAA, or a detailed timeline of when the funds will flow to the airline. Instead, the government is targeting SA’s big commercial banks to provide short-term bridging finance of at least R10-billion, which will be backed by government guarantees. A guarantee is an agreement that the government or the fiscus would pay up if SAA defaults on payments
The finance, which will fund SAA’s short-term funding requirements such as paying retrenchment packages, will buy the Treasury more time to raise cash for SAA’s entire restructuring process. But the banks, which met Public Enterprises and Treasury officials at the weekend, are understood to be unwilling to provide SAA with further support because it is not creditworthy given its dire financial situation. These talks are ongoing.
The SAA funding question has pitted Public Enterprises Minister Pravin Gordhan against Mboweni and the National Treasury. Gordhan, who wants SAA to be saved at all costs, apparently has the backing of Ramaphosa and the ANC. At the ANC’s lekgotla in January, it was decided that SAA be restructured and retained as a state entity.
With Gordhan backed by Ramaphosa and the ANC, it would be hard for Mboweni to object to another bailout for SAA, which has enjoyed roughly R57-billion in government support since 1994. Mboweni has a testy relationship with SAA.
A year after he was appointed by Ramaphosa as finance minister in 2018, Mboweni said SAA should be shut down. He didn’t make new money available for the airline in the February 2020 and June budgets. Mboweni might be able to live with the funding of SAA’s business rescue plan as it will be done in a “fiscally neutral” matter – meaning funds will come from budget cuts instead of the state raising new money through debt sources.
But Peter Attard Montalto, the head of capital markets research at Intellidex, said the SAA bailout sends a worrying signal to investors and lenders who have come to the country’s rescue during the pandemic.
“While R10.4-billion may not be huge, it is only the start of what is needed in the coming years for the airline and so the government has set itself on a slippery slope,” he said in a note to clients.
Said Alf Lees, the DA’s finance spokesman:
“It is astounding that there can be any consideration of budget cuts – which will inevitably impact on frontline services such as health, education and policing – when SA had to go cap in hand to the International Monetary Fund to borrow money in order to cope with the economic meltdown caused by the irrational Covid-19 lockdown.” BM/DM
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