Ramaphosa says state’s guarantee of SAA debt could cause fiscus to implode –

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Once upon a time, the pride of SA. Now, its debts can implode the national fiscus.

The business organisation Sakeliga today highlighted the importance of President Cyril Ramaphosa’s statement in parliament that state guarantees for loss-making state enterprises could result in the South African fiscus imploding. Sakeliga is approaching Treasury to gain access to the relevant clauses in the state’s debt guarantee contracts.

On Tuesday, President Ramaphosa, reacting to a question by the DA leader, Mmusi Maimane, said South African Airways (SAA) could not simply be closed down, because it could result in the debt of other state enterprises becoming immediately payable as well.

Daniel du Plessis, Legal Analyst at Sakeliga, said in order to determine how the state should solve its problem of bankrupt state-owned enterprises, it was essential for the public to gain insight into the extent of this state-guarantee knock-on effect.

“The risk is that, should an enterprise such as SAA be closed down, it could contractually result in other state-guaranteed debt also being called up. SAA’s state-guaranteed debt amounts to about R14.5 billion. The risk to the fiscus could, however, be as much as the full amount of all state guaranteed debt, i.e. R334 billion. It is high time for government to put its cards on the table about the risks attached to the debt of state-owned enterprises.”

Du Plessis pointed out that state guarantees for debt at present stood at five times the amount it was eight years ago, an increase of approximately R65 billion to R334 billion. (See accompanying graph.)

Du Plessis said it was not uncommon for debt agreements concluded by state enterprises to contain stipulations that provide for acceleration of debt: “Numerous events and circumstances such as defaults or closures could serve as triggers for these stipulations – which could have disastrous consequences if put into operation. If the implementation of these stipulations is allowed, it is even possible that the collapse of one state enterprise could spill over to others as well.

“Notwithstanding the risk, because of the inaccessibility of the relevant information it is not clear what the full extent of this debt guarantee network is. Consequently, it is also possible that the risk could be used merely as an excuse not to get rid of state institutions, as the eventual chain reaction of guarantees being called up could be less drastic in practice. For this reason, Sakeliga’s request to disclose this information is extremely important: this would put the public in a better position to determine what the impact of closing down or selling SAA and other state-owned enterprises would be on the fiscus.”