Finance minister Malusi Gigaba has announced that the South African government will be selling some of its shares in Telkom to meet budget requirements, as expenditure is estimated to overshoot its targets by R3.9 billion.
According to Gigaba, sluggish economic growth in 2017 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.
“At the same time, additional appropriations of R13.7 billion to recapitalise South African Airways (SAA) and the South African Post Office (SAPO). These have been partially offset by use of the contingency reserve, but a shortfall of R3.9 billion remains,” he said.
“To ensure the expenditure ceiling is not breached, we have decided to dispose of a portion of government’s Telkom shares. We do not take this decision lightly, but we have had to in order to
maintain the credibility of the expenditure ceiling.”
Gigaba said that government’s options to reign in the budget was limited.
“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,” he said.
“Given that per capita income is falling, the economic impact of further expenditure cuts or tax hikes could be counter-productive.”
Gigaba did not specify how much of government’s stake in Telkom would be sold, stating only that a “portion” would be sold.
Government currently has a 39.76% stake in Telkom, and previously looked at selling this stake to raise as much as R14 billion to assist the fiscus.
At the time, Telkom put out a statement warning shareholders to exercise caution when dealing with its shares on the news, but later withdrew the statement saying that it had not been aware of any active plans for government to change its shareholding.
Following Gigaba’s speech, however, Telkom’s shares declined by 2.7% on the JSE, to R53.41.
Selling state assets has been described by analysts as the ‘best-worst’ route the government could take to fund struggling SOEs without having a major impact on the national budget; however, such a move would also face procedural and regulatory issues, others said.
A major criticism of the possible sale of its stake in Telkom was that government would be selling an asset that was adding revenue to the fiscus each year, to bail out a company that is a net drain.