Economist Mike Schussler warns that while many believe that the worst thing for South Africa’s economy would be getting a bailout from the International Monetary Fund, there are worse fates for its citizens – like the government dipping into the country’s R1.7 trillion pension fund.
This week, the Government Employees Pension Fund (GEFP) announced that it would be ‘investing’ R5 billion in Eskom, which would help the embattled power utility cover costs to the end of the month.
Despite the injection, however, Eskom still needs to make up the remaining R20 billion it needs to keep its head above water until the end of March 2018 – on top of the R360 billion debt the group is already carrying, of which more than R200 billion is guaranteed by the government. This places the economy at extreme risk if ever recalled by lenders.
This is an all-too-familiar state of affairs at South Africa’s state owned companies. Whether it be Eskom’s liquidity issues, SAA’s inability to turn a profit, or the SABC and almost every other state enterprise going to national government, hat in hand for a bailout – the country’s SOEs are in a financial mess, while national treasury is under pressure with declining tax revenue, and increasing demand on the budget.
One of the ways South Africa could get out of the mess is by approaching the IMF for a bailout. This is seen by many as a worst-case scenario, as IMF bailouts come with a lot of oversight and countless terms and conditions.
According to Schussler, however, this is not the outcome he fears. In a column published on Moneyweb, the economist expressed concern that the South African government could go a darker route.
“The fear I have is that they use our pension fund savings,” Schussler said.
“South Africa has the fifth-largest pension fund savings in the world as a percentage of GDP. The pension pot is also the eighth-biggest in dollar terms in the world. This pension pot belongs to about 12 million South Africans, and we already tell them how they can invest it.”
Schussler noted that, while the pension fund is regulated – dictating how the money can be invested and where – these regulations can be changed on a whim, and don’t need to pass any parliamentary or legal muster.
If government starts dipping into the pensions, he said, it can ‘hide’ many financial issues from the general public, avoiding the shame of going to the IMF – but it would not last, and many would find themselves all the poorer when they retire.
And it’s not some sort of what-if scenario as it has happened before.
Even looking beyond the most recent R5 billion Eskom bailout being orchestrated by the PIC, around 70,000 Transnet employees were robbed of their pensions through a similar process in the past, he said.
“As things go wrong, South Africans saving for retirement will be the only ones to lose their income when Eskom or government cannot pay. South Africans will get poorer in real terms as risky bonds fail or interest rates are lowered to help government borrowing,” Schussler said.
“The looting and waste continue – and (there is) no IMF oversight.”