Godongwana facing tough decisions on SOE bailouts, says economist

JOHANNESBURG - Chief economist at Econometrix, Azar Jammine, said that Finance Minister Enoch Godongwana had tough decisions to make on the bailout of parastatals when he tables his budget speech on Wednesday.

Several state-owned companies are facing financial difficulties, including Eskom, which has debt and borrowing costs that exceed R400 billion.

The growing problems at Transnet are also affecting the mining industry's ability to export bulk commodities, impacting the country’s economy.

During his maiden budget speech last year, Godongwana announced government’s decision to tighten measures on massive bailouts for state-owned entities.

At the time, almost R300 billion had already been used to bail out the embattled companies, including Eskom.

This led to a reduction of about R257 billion in public funds available for frontline services and critical infrastructure.

Godongwana called for SOEs to develop and implement sustainable turnaround strategies, adding that strict criteria would be followed to fund failing parastatals this year.

Chief economist at Econometrix, Azar Jammine, warned that if government reduced the bailouts, citizens may have to bear the cost.

"If SOEs are not bailed out through government bailouts then the rescue of these SOEs will have to take place through extra taxpayers’ money."

Meanwhile, Godongwana is expected to flesh out details of how government will absorb part of Eskom’s R400 billion debt.