Busisiwe Mavuso, the chief executive officer of Business Leadership South Africa (BLSA), has called for the debt transfer of state-owned entities to be productive and encourage economic growth in the country.
Mavuso said that business believes the more stressed an economy is, the more important it is that “productive investment” should be the guiding criterion for budgetary allocations by the government.
There is often a tendency between government and business to assess each policy or economic intervention in isolation which often makes a compelling case and is approved. Despite this, in some instances, it can lead to there not being enough money in the national budget to pay for the wish list of initiatives – while GDP growth is constrained, said Mavuso.
Ahead of the medium-term budget policy at the end of October, finance minister Enoch Godongwana has to contend with requests for extra funding from SAA, Denel, Eskom (R2 billion for additional maintenance) and the Post Office, which would total about R7 billion, said Mavuso.
“Then he needs to find about R45 billion to extend the social relief of distress (SRD) grant to end-2024.”
While the amount is still to be announced, the government has confirmed that a portion of Eskom’s debt totalling almost R400 billion, is to be transferred to the state’s balance sheet, said Mavuso.
However, this extra cost for the state is a productive one as Eskom will be able to access cheaper funding for maintenance and possibly even invest in desperately needed infrastructure upgrades.
If things were just left to go on as they are, Eskom would need to take on increasing amounts of new debt just to keep operating, and that would lead to a complete financial meltdown, with disastrous financial consequences for the state.
“Taking on that debt averts a greater fiscal cost further down the line,” said Mavuso.
Speaking on infrastructure, Mavuso said that the debt transfer (regarding Eskom) helps to address the most urgent national crisis, a secure energy supply will have a tremendous impact on productivity and enable investment into the economy, and in turn, facilitate job creation.
“A secure and competitively priced energy supply will benefit the entire economy.”
Mavuso added that big businesses would like to see additional funding to the National Prosecuting Authority (NPA) and the Hawks so that they can, quickly establish accountability and the rule of law.
She said that this would create a more attractive investment environment and would even help South Africa extricate itself from the likely greylisting that would increase the cost of doing business in the country.
Debt servicing
The CEO of Business Unity South Africa (BUSA) speaking on behalf of business in South Africa has also chimed in on the country’s debt problem, reported BusinessLive.
Addressing a budget planning dialogue last week at the National Economic Development and Labour Council (Nedlac), Cas Cavoodia said that higher-than-expected debt service costs will add at least R9 billion to government spending in 2022, reported BusinessLive.
Coovadia said that business is very concerned that government doesn’t borrow more than it should, especially to meet expenditure that cannot service the cost of that borrowing.
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