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Government department budgets may have to be cut to fund yet another SA Post Office bailout

Government department budgets may have to be cut to fund yet another SA Post Office bailout
(Image: Reuters | Rawpixel | Wikimedia)

The Cabinet has agreed to provide the Post Office with an additional R3.8bn to fund its business rescue process. Budgets of departments might be cut to free up additional money for the Post Office or funds set aside by the government for unforeseeable events might be raided.

There will be no new money raised by the government to fund further bailouts to the SA Post Office, the state-owned enterprise (SOE) that requires an additional R3.8-billion for its business rescue process.  

The Cabinet has agreed to provide the Post Office with R3.8-billion that will be used to keep the SOE going and pay its creditors while its operations are restructured under a business rescue process.

However, the National Treasury has not yet consented to provide the Post Office with the R3.8-billion, which will be over and above the R2.4-billion bailout that was allocated to the SOE by Finance Minister Enoch Godongwana in the 2023/24 Budget.

The Treasury said any new spending pressures for 2023/24 (such as new money required for the Post Office) would have to be funded from within the already approved fiscal/funding framework.

“To remain within the framework, new spending pressures will have to be funded from reductions in programmes and/or from the contingency reserve,” the Treasury told Daily Maverick.

In other words, the Treasury is not prepared to raise money to throw into the Post Office. Instead, the budgets of government departments might be cut to free up additional money for the Post Office or funds set aside by the government for unexpected/unforeseeable events might be raided to shore up financial support for the SOE.  

Bailing out the Post Office would arguably be like throwing money into a black hole. 

If the government grants the Post Office an additional R3.8-billion, it would mean that the SOE would have received bailouts worth R10.39-billion over the past nine years — money that was wasted because the SOE is insolvent and cannot even fulfil its most basic function of delivering mail and parcels on time. 

Confirmation of whether the Treasury would give the Post Office the additional R3.8-billion and the funding mechanisms are likely to be announced in the Medium-Term Budget Policy Statement, which is usually delivered in October and outlines the government’s spending priorities over three years.

Through this process, Godongwana has the powers to attach conditions to the additional funding for the Post Office — conditions that are yet to be determined but usually include borrowing limits on SOEs, and demonstrable efforts (with reporting timelines) in the implementation of a restructuring plan. 

Godongwana is under pressure to make good on his promise of showing SOEs “tough love” and reversing the entrenched culture of their dependence on taxpayer funds for survival. Equally, the Treasury is under pressure to rein in government expenditure and stop public debt from ballooning, even though it is set to grow from R4.73-trillion in 2022/23 to R5.84-trillion in 2025/26. 

In its annual report on SA, the International Monetary Fund estimated that public debt would increase to higher levels than the Treasury has projected and will not stabilise over the medium term as expected, owing to a weak economy and growing spending pressures. 

The Post Office is one example of spending pressures. The High Court in Pretoria recently placed the Post Office under a business rescue process on the promise from the government that it would provide more funding to the SOE for the restructuring process. 

Read more in Daily Maverick: SA Post Office goes the business rescue route, high court orders 

The government is hoping that business rescue will turn the Post Office’s fortunes around. The business rescue process will press ahead with cutting costs at the Post Office, including axing 7,000 jobs (from its workforce of 14,460 as of 2022) to save more than R1.3-billion in annual salaries. The Post Office also wants to expand its mandate beyond postal services to include offering logistics and e-commerce services. DM

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  • David Pennington says:

    They would be better off buying gas for the sewers of Joburg

  • Riaan Joubert says:

    What is the Post Office’s core competency? Certainly not mail and package delivery. Do they still have a “raison d’etre”? The private sector companies are delivering such cost effective parcel collection and delivery services. I suppose the main reason to keep them going is not to add 14000 people to the unemployed numbers.
    My question is who do we need to keep running Eskom or the Post Office. I think Eskom would be able to use the money better if it comes with conditions such as buying electricity from green energy source, splitting Eskom into the three businesses that they comprise currently and investing in the distribution network towards achieving a national smart electricity distribution network or grid.

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