Economists have warned that the country’s debt to Gross Domestic Product could be pushed to unsustainable levels if requests for bailout by State Owned Enterprises are given a green light. Government’s debt as a percentage of GDP has been sitting at around dangerous levels above 50 percent.
Recent measures to bring debt below 45 percent have been unsuccessful as billions of rands are pumped into poorly managed State-Owned Enterprises. Government’s failure to tighten its purse strings amid dwindling revenue collection is now threatening the fiscus.
Corruption and wasteful expenditure are hampering efforts to derive value from the limited government resources.
To avoid embarrassment, government is often forced to divert resources to sustain operations in struggling SOE’s affected by corruption and maladministration.
This has created perception that the state will always come to the rescue of ailing SOEs under any circumstances. But now government itself is also running out cash to bail out struggling State-Owned Enterprises.
Government had to borrow billions rands in order to keep services of many ailing state companies like SAA and Eskom above water.
It is now becoming clearer that government can no longer continue on this path without threatening key spending priorities including education and social welfare.
Last week Standard & Poor’s took a decision to keep its credit rating of the country at Junk Status, citing rising debt levels among others.
“The debt to GDP is about 45 percent or so, if you add all the guarantees and bailouts that SOE’s still need that number is up to unsustainable levels,” says Investment Analyst Patrick Mathidi.
However the withdrawal of bailouts alone will not help improve the country’s difficult fiscal position. The economy must grow and debt levels must stabilise. These may support a case of a better credit review by the three rating agencies.