South Africa

Why South Africa took a R11.4 billion loan from the World Bank: finance minister

The decision to take on a R11.4 billion ($750 million) loan from the World Bank is not out of the ordinary and forms part of the government’s normal, budgeted finance plans, says finance minister Enoch Godongwana.

In a briefing to parliament on Tuesday (1 February), Godongwana says Treasury approaches the market every year to raise money for three things:

  • To fund the deficit between revenue and expenditure;
  • For debt servicing costs;
  • To raise money for redemptions.

He added that the Treasury plans to raise R630 billion this financial year, with the R11 billion making up a relatively small portion of this budgeted amount. Godongwana added that Treasury will approach a number of market groups when trying to raise funds including the New Development Bank, the African Development and the World Bank.

Godongwana said that South Africa’s debt costs are growing and are beginning to crowd out service delivery, as the government now spends more than the health budget on debt servicing.

This is set to continue unless the government begins containing debt in the short term, he said. The finance minister added that the World Bank loan assists in this containment through favourable terms, with no special conditions attached to the loan.

“We need to raise R630 billion. The World Bank’s R11 billion loan is part of this. We are raising this money from various sources, including Development Finance Institutions such as the New Development Bank and others, not just the World Bank,” he said.

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“The World Bank loan has a cheaper interest rate. The Bank also gave us a repayment holiday of three years on the loan. So that is the rationale behind taking this loan.”

Treasury deputy director-general for asset and liability management Duncan Pieterse was quoted as saying that the proceeds will be used to meet interest payments on South Africa’s foreign debt and for the redemption of foreign debt.

More loans likely

Since the onset of Covid-19, South Africa has pursued concessional loans from multilateral lenders, including the International Monetary Fund and New Development Bank, to help offset virus-induced damage.

Bloomberg reports that the state is seeking at least $800 million as it considers ways to fund the likely extension of a Covid-19 relief grant that’s scheduled to expire in March, said the people who asked not to be identified because they’re not authorized to speak to the media.

The government will continue to explore all available options, including low-interest loans from multilateral institutions, to reduce the cost of its debt and preliminary talks with the World Bank have taken place under the auspices of a country partnership framework, the National Treasury said in an emailed response to questions. It wouldn’t say how much it is seeking or how the funds would be used.

Read: South Africa looking for a World Bank loan for the second time since 1994

Artmotion S.Africa

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