The South African government has pumped US$170 million into its cash-strapped South African Airways to enable the airline to pay its debt back to Standard Chartered Bank, thereby avoiding a default, the National Treasury has said.The Treasury said on Monday that a default by the airline would have triggered a call on the guarantee, leading to an outflow from the National Resources Fund and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt.
The payment was done in terms of section 16 of the Public Finance Management Act (PFMA), Treasury said.
The legislation states that the finance 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.
The due process laid out in the legislation will be followed after this development to inject the funding to keep SAA afloat in the air.
“Improving the financial positions of the airline through recapitalisation has been on government’s agenda for a while as outlined in the February 2017 Budget.
“Several options are being explored and an update will be provided during the Medium Term Budget Policy Statement in October 2017.
“Given the nature of the problems at SAA, Section 16 of the PFMA had to be used as the last resort,” the Treasury said, adding that the government will do everything to ensure that the airline’s turnaround strategy is implemented.