Government financial support to SOEs presents major sustainability risk to debt management

The Financial and Fiscal Commission (FFC) has warned the government’s continued support of State-Owned Enterprises presents a major risk to debt management and financial sustainability.

The FFC says there is now a need to establish a new framework for supporting SOEs. This is based on them meeting clear financial and operational goals.

Speaking during the National Assembly Appropriations Committee, the commission said government liabilities to the SOE were very high and could lead to further credit rating downgrades.

Senior Researcher Thando Zongo has told the committee that SOE governance failures result in inefficiency, corruption and financial mismanagement.

“The SOEs governance failures manifest in inefficiency, corruption and financial mismanagement really calls for legislative and governance reform for these SOEs. That will be based on centralised oversight.”

“In particular with regards to procedures for the appointment of SOE board members but also most importantly the performance management framework and procurement regulation for these SOEs,” adds Zongo.

Meanwhile, Eskom is struggling to deal with power supply as a result of its ageing infrastructure. The power utility’s debt has been increasing over the years.

Last year, it reported that its debt has escalated to R440 billion and a net loss of R20.5 billion.

The government continues to support the state entity.

Earlier this year, the officer of the Auditor-General revealed that the financial situation at the Passenger Rail Agency of South Africa (Prasa) has not improved.

Briefing the Standing Committee on Public Accounts (Scopa) on the 2019/2020 audit outcomes, the office disclosed that Prasa incurred R28.6 million billion in irregular expenditure.

Sharp increase in irregular, fruitless and wasteful expenditure at most SOEs: