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Medium Term Budget: Gigaba expected to explain where SAA will get R10 billion

Oct 23, 2017

All eyes will be on Finance Minister, Malusi Gigaba, who is expected this week to table his maiden Medium Term Budget Policy Statement (MTBPS) in Parliament amid unhappiness about the recent R3 billion South African Airways bail-out. The cash-strapped airline also needs R10 billion to stay afloat, and Gigaba is expected to shed light on where government plans to get it.

Appointed to head National Treasury following President Jacob Zuma’s Cabinet reshuffle in March, Minister Gigaba is set to deliver the MTBPS, also known as the mini-budget, in the National Assembly on Wednesday.

Minister Gigaba’s tabling of the MTBPS comes after Statistics South Africa’s announcement last month of the country’s emergence from a technical recession. In the second quarter of 2017, South Africa’s Gross Domestic Product (GDP) grew by 2.5%.

On Wednesday, Minister Gigaba is expected to brief the nation on how South African Airways (SAA) will be funded.

The national carrier, which was moved from the portfolio of Public Enterprises to National Treasury in 2014, has been struggling to pay its lenders and service providers.

Minister Gigaba had previously announced that government is exploring options of establishing a proper capital structure for the airline

At the end of September, National Treasury announced that government has had approved a R3 billion transfer to SAA to allow it to meet its debt obligations to Citibank.

The funds, which were also to be used to assist the airline with its immediate working capital requirements, were from the National Revenue Fund (NRF).

The bailout was done in terms of section 16 of the Public Finance Management Act. This section of legislation states that the Minister can authorise the use of funds to defray expenditure of an exceptional nature, which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future Parliamentary appropriation of funds.

“A default by the airline on the R3 billion would have triggered a call on the guarantee exposure totalling R16.4 billion, leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA's guaranteed debt,” Treasury said at the time.

This was the second transfer of funds since July.

Gigaba, on Thursday last week, officially confirmed the appointment of six new members to the Board of South African Airways (SAA), as well as the full slate of non-executive board members at the airline, which have been approved by the Cabinet.

Deputy President Cyril Ramaphosa has said an Inter-Ministerial Committee on SOEs was looking into strengthening SOEs that need support, including SAA, in order to return to their profitability.

Answering questions in the National Council of Provinces (NCOP) earlier in September, Deputy President Cyril Ramaphosa said challenges faced by the airline were quite complex.

Last week, Treasury announced the appointment of six new members to SAA’s board.

The airline further announced network changes both for domestic and regional segments as part of its newly developed five-year plan that seeks to return the company to financial sustainability.

Minister Gigaba has also indicated that the process of assessing the viability of a merger between SAA and SA Express is done, pending a government review.

- additional reporting SAnews.gov.za