The IMF has advised the South African government not to pour billions into the failing SOE, South African Airways (SAA) and to rather spend state funds on either stimulating growth or alleviating poverty.
The IMF approved a R70 billion low-interest loan to the South African government at the end of September in order to alleviate the economic devastation caused by the COVID-19 pandemic. And IMF executive director, Kristalina Georgieva, has now warned the South African government about spending money on failing parastatal, SAA, with the initial stages of the business rescue process costing R10 billion.
“With respect to financial support to South African Airways, as we have noted in the past, subsidies to persistently loss-making state-owned enterprises, as elsewhere, need to be weighed against alternative uses of scarce public resources, including investments in alternative growth-enhancing and/or poverty-reducing investments,” she wrote in a letter to the DA, as reported by IOL.
The letter was a response to DA MP Geordin Hill-Lewis red-flagging the government’s plans to commit the funding to SAA. The medium-term budget policy statement (MTBPS), to be released later this month is expected to make allocations for the business rescue process because no private investors or commercial banks are willing to invest in the State Owned Enterprise that hasn’t turned a profit since 2011.
Hill-Lewis’ letter was published a day after Finance Minister Tito Mboweni asked Parliament to postpone the release of the MTBPS by a week, which could have something to do with the need to buy time for SAA. Mboweni is also negotiating a $2 billion loan with the World Bank, as he confirmed after the IMF loan was approved.
“The World Bank loan is being negotiated and the outcome thereof will be announced,” he said.
Mboweni spoke to parliament, saying that the “complex and unusual circumstances visited upon us by the COVID-19 pandemic” makes it necessary to adjust the National Treasury’s spending strategy.
“The government is determined to maintain a prudent fiscal stance which is in the best interest of the country in the medium and long term. The 2020 MTBPS will reflect this position.”
Public Enterprises Minister Pravin Gordhan postponed a briefing to Parliament’s watchdog Standing Committee on Public Accounts (Scopa) on SAA just hours before Mboweni’s speech.