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The fiscal cliff: National Treasury plans to become a loan shark to SOEs


Xolisa Phillip has had quite an adventure as a journalist in the roles of subeditor, news editor, columnist and commentator. She pretends to be Olivia Pope during the day, while still maintaining a presence in journalism – a passion project she cannot shake away. Journalism keeps finding Phillip no matter where she is and somewhat manages to hold its own space no matter where she is professionally.

The fiscus is staging a renewed bid to recoup the billions it pumps into SOEs without the desired outcomes. This will take the form of a dedicated liquidity facility, which will make a distinction between equity injections and loan advancements. The emphasis on the latter is repayment. However, National Treasury has overlooked a vital detail in the system, which could trip up the entire scheme: it is not in charge of SOEs.

Technically, and beyond a shadow of any doubt, the country is headed towards a fiscal cliff. SA Inc is teetering too close to the edge for Finance Minister Tito Mboweni’s medium-term budget policy statement (MTBPS) not to serve as a wake-up call and a grim warning about the pain that awaits at the other side of a lack of radical action.

The time for talking is well and truly over, and inaction on the government’s part is not an option. Something has to give: systemically, structurally and fundamentally. If not, a paradigm shift will be dictated to South Africa by international forces and institutions, and on terms beyond the government’s control.

That is a nightmare scenario in which we do not want to find ourselves.

At the pre-MTBPS briefing on Wednesday morning, Mboweni was his usual frank self about the factors which ailed the republic: an ingrained culture of corruption and endemic wastage in the system. These two things, as well as countless others, contributed towards the government’s inability to balance its books.

However, the finance minister stopped short of prescribing bitter medicine.

But the current status quo is not only unsustainable, it is also unfeasible in the long term. And as Mboweni quipped: “If we are serious about running a First-World country, we have to close [the fiscal leakages, read as corruption, and wastage.] South Africa is not a Mickey Mouse or Goofy country.”

The other problem confronting National Treasury is that it has limited room to re-engineer taxes more than it has already done in the recent past.

During Wednesday’s briefing, Mboweni took journalists into his confidence and revealed he had had discussions with National Treasury head of tax Ismail Momoniat. By the finance minister’s own account, his head of tax is not swayed nor entirely convinced there is much room to manoeuvre or tinker any further with South Africans’ taxes.

Mboweni will, of course, not stop trying to explore his options as finance minister in Tax Avenue because, according to him, South Africans have to: “Render unto Caesar what is due to him.”

When discussions moved to state-owned entities (SOEs), it was surprising to hear National Treasury is planning to establish a liquidity facility dedicated towards servicing parastatals. The rationale is to create a distinction between equity injections and loan advancements.

During this segment of the briefing, Mboweni went as far as to proclaim as “over” the days of SOEs coming to National Treasury for unconditional financial help. The emphasis was on loan advancements, which would have to be repaid.

The finance minister explained the thinking behind this facility: when companies run into liquidity problems, they approach their shareholders for rights issues to raise capital. However, that is not the case with SOEs because the government is the sole shareholder. Hence the current situation in which the government serves as SOEs’ piggybank of choice without much return to show for its generosity.

The liquidity facility is still at the conception stage and is not yet fit for the market.

It sounds good and the intentions seem to be well placed. True, SOE boards and executives can’t keep making calls to No 40 Church Street, as National Treasury director-general Dondo Mogajane put it, begging for bailouts.

But this raises several questions. One has to ask why National Treasury wants to act as a loan shark to SOEs and take on the added administrative headache and burden.

The first structural hurdle is the simple fact that SOEs do not account directly to National Treasury, that mandate has been bestowed on the Department of Public Enterprises (DPE). As much as the finance minister wants to crack the financial whip on parastatals, his success at it hinges entirely on how well his counterpart at DPE responds to the proposal.

Second, the planned liquidity facility is a roundabout admission of failure in terms of enforcing bailout and government guarantee conditions. A good illustration of this is Eskom.

In 2015, the government sold its stake in Vodacom to bail out Eskom. Four years later, the power utility has plunged further into crisis and is in an even deeper financial hole. A big part of the problem is that National Treasury can attach all manner of conditions, but ultimate enforcement rests with DPE.

Looking at the 2015 Eskom experience, National Treasury’s efforts at ensuring accountability were thwarted at every turn by the then-minister acting in concert with the power utility’s board. The entire thing was rendered futile and made a mockery of the magnitude of the state selling its prime assets.

Last, National Treasury, or more appropriately the finance minister, does not appoint members of SOE boards. Many instances of governance failures at SOEs can be traced back to their boards and prior ministers. Therefore, try as it might, the success of National Treasury’s efforts to create a new regime or scheme, is in the hands of the DPE.

In short, the mooted liquidity facility constitutes adopting a band-aid approach to a structural issue. In fact, the continued failure of SOEs and the National Treasury’s inability to enforce fiscal discipline are symptomatic of the problematic nature of current structural and institutional arrangements. As such, National Treasury’s liquidity facility will be treating the symptoms, not the underlying causes, of SOE failures. BM


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