Government to dispose of its Telkom shares

Government to dispose of its Telkom shares
Government to dispose of its Telkom shares

Finance Minister Malusi Gigaba has announced that government will dispose of its Telkom shares in order to cover a shortfall of R3.9 billion.

The Minister said this when he tabled his maiden Medium Term Budget Policy Statement in the National Assembly on Wednesday.

The medium term budget – which projects spending over a three-year period – was presented under difficult circumstances.

“The expenditure ceiling is threatened in the current year as a result of government’s recapitalisation of South African Airways and the South African Post Office. We aim to avoid a breach of the expenditure ceiling this year through the disposal of assets.

“Government is disposing of a portion of its Telkom shares to avoid a breach, with an option to buy them back at a later stage,” the Minister said.

The Minister was referring to government spend that has resulted in the expenditure ceiling being breached by R3.9 billion.

With SAA set to receive total of R10 billion in bail out money – R5.2 billion already being paid through an appropriation and the remaining R4.8 billion to be paid in March, as well as R3.7 billion to recapitalise the SA Post Office.

In the Medium Term Budget Policy Statement, National Treasury said payments for financial assets are funded by the sale of assets in the same year. The principle was applied to the R23 billion allocation to Eskom in 2015, which was financed by the sale of government’s Vodacom shares.

Tough economic times after previously announced austerity measures

The Minister said over the past four years, government has followed a path of measured fiscal consolidation that aimed to stabilise the debt-to-GDP ratio by reducing spending and introducing tax increases.

He said this strategy was met with some success and was reflected in a narrowing primary deficit. But of late, debt has continued to rise as a share of GDP as a result of declining economic growth rates.

“This year, sluggish economic growth has caused a significant reduction in the tax revenue outlook which has significantly eroded government’s fiscal position.

“Tax revenue is projected to fall short of the 2017 Budget estimate by R50.8 billion in the current year, the largest downward revision since the 2009 recession,” he said.

Government has been carefully deliberating on the best fiscal strategy to ensure the programme of measured fiscal consolidation is not derailed.

None of the options are free of pain, the Minister said.

“Some would argue for the imposition of more austere measures to aggressively rein in the growth of public debt. Others might argue that to reduce spending levels would further damage the economy. Government’s short-term options to reverse this situation are limited.”

He said government would, over and above disposing of a portion of its Telkom shares, consider fiscal efforts – a mix of expenditure cuts and revenue increases – to address some of the revenue shortfall.

“Announcements will be made on these fiscal efforts at the time of the 2018 Budget,” he said. –

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