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South Africa has agreed to guarantee $600 million in loans for troubled state airline South African Airways over the next two years, a move that could put further pressure on the government’s strained budget.
The Department of Public Enterprises said in a statement on Tuesday the 5 billion rand ($600 million) guarantee would require the airline to develop a turnaround strategy to be approved by it and the finance ministry.
“The guarantee will enable SAA to borrow from the financial markets, thus ensuring that the airline continues to operate as a going concern,” it said.
The airline will also be required to provide the government with its financing strategy for a planned purchase of airplanes, the department said.
In a sign of growing concern about Pretoria’s finances, credit agency Moody’s last week cut its ratings on South African government bonds by one notch, citing the deterioration in the government’s debt profile and uncertain revenue prospects.
($1 = 8.3194 South African rand)
Reporting by Tiisetso Motsoeneng; Editing by David Dolan. Copyright (2012) Thomson Reuters.