The government on Wednesday, October 28, announced the release of 10.5 billion rand ($638 million) needed to fund a rescue plan for struggling state-owned South African Airways (SAA).
The cash-strapped flag carrier was placed under a state-approved administration in December following years of mismanagement and rising debt.
In a mini budget statement on Wednesday, Finance Minister Tito Mboweni said 10.5 billion rand “is allocated to SAA to implement its business rescue plan.”
He stressed that the funds were “not a bailout,” but rather part of the responsibilities that the government, as a shareholder in the airline, has.
“You can’t run away from your obligation,” he said while presenting the budget in parliament.
The payment is funded through cuts in spending elsewhere in other public entities and conditional grants.
The latest allocation, expected to save the limping airline, is in addition to 16.4 billion rand doled out in February this year to settle guaranteed debt and interest.
Administrators axed some domestic and some international routes in February to save cash – even before the coronavirus grounded airlines globally – as they drafted a massive restructuring plan to create a leaner, competitive airline.
The rescue plan will see the airline shrink dramatically, emerging with a fleet of just 6 aircraft out of the 44 it had last year. Only a fifth of the almost 5,000 employees would remain.
The aim is then to grow it back to 26 planes by the end of 2021 and rehire 1,000 furloughed staff.
The decision to fund SAA has incensed opposition parties who argue that the country cannot afford to continue pouring money into underperforming state-owned companies at a time it is battling a huge budget crisis.
The finance minister bemoaned the country’s looming debt crisis, saying that South Africa could not sustain the current levels of debt, particularly as increasing borrowing costs were diverting resources that should be going to economic and social development.
“Right now, government is borrowing at a rate of R2.1 billion ($128.6 million) per day,” Mboweni said, warning that recent fiscal weakness and the pandemic should not be allowed to pull the country into a sovereign debt crisis.
“We must be careful to avoid the fate of countries like Argentina and Ecuador that defaulted on their debt this year,” he warned.
Mboweni has recently described the gap between government spending and government revenue as “the jaws of the hippopotamus” that need to be closed.
The Minerals Council South Africa, a grouping of mining giants, warned that the country “is facing the real risk of a full-blown sovereign debt crisis within two years unless the handbrake on government expenditure is applied in a significant fashion.”
Battered by the coronavirus pandemic at a time it had already slipped into recession, South Africa’s economy is projected to shrink 7.8% this year, said Mboweni, but it is expected to expand by 3.3% next year. – Rappler.com
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