DA calls for review of SOE's guarantee criteria

10 March 2015

I have today written to the Minister of Finance, Nhlanhla Nene, requesting he institute, as a matter of urgency, a wholesale review of the criteria by which all bail-outs and guarantees are extended to State Owned Enterprises (SOE's). These bail-outs and guarantees pose a serious risk to our fiscal sustainability and cannot continue unhindered. An external review panel must be launched to fully consider the criteria and processes followed.

Government spending on failing SOE's remains one of the biggest strains on the public purse, yet it appears the Minister has not fully grasped the effect constant bailouts and guarantees are having on the economy. 

Our current fiscal situation does not inspire confidence, as net-debt stock is rapidly on the increase - from 21.8% of GDP in 2008/09 to 40.8% of GDP in 2014/15. Moreover, if contingent liabilities are included this increases to 57.3% of GDP in 2014/15.

National Treasury has previously indicated that a 40% debt to GDP ratio constitutes an upper bound to the risk of indebtedness. Moreover, the International Monetary Fund (IMF) has produced analysis indicating that the ratio should be kept below 40%.

However, according to the IMF if 75% of government's guaranteed commitments are realised it would increase the debt to GDP ratio to 72%. This is well above the high risk threshold, and should be cause for great concern in terms of fiscal sustainability. 

Therefore tax increases are simply not a sufficient or justifiable means to achieve fiscal sustainability when government has uncertain ‘blank cheques' hanging over its head. 

Our economy cannot be held ransom to debt guarantees held by SOE's that do nothing but syphon funds without any meaningful return. This requires immediate attention.

While national debt is ever increasing, economic growth stagnates. Instead of investing in job creating infrastructure and economic growth, the government continues to extend guarantees and bailouts to ailing SOE's.

Moreover, it is not the role of Treasury to ease the burden on well compensated SOE executives, at the expense of taxpaying South Africans. If SOE's cannot stay afloat, they must be privatised.

The DA has long fought for a radical rethinking of government's approach to SOE's, with the partial or full privatisation of certain SOE's a viable option to create competition and efficiency.

Government cannot continue to throw good money after bad, and Minister Nene must now act before it is too late by reviewing the process followed, ensuring that unhindered guarantees do not continue - driving South Africa deeper into debt. 

Statement issued by David Ross MP, DA Shadow Deputy Minister of Finance, March 10 2015

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