‘Cheap’ R11.4 billion World Bank loan to South Africa

The South African government has a rotten reputation for caring how it spends taxpayers’ money. Just by chance, the very long investigation by the Special Investigation Unit into public procurement related to Covid-19 came out on Tuesday confirming this. It’s a dark read, of course. Some 62% of the contracts awarded turned out to be irregular. This beggars belief, but is actually not surprising. When the government spends, wastes, and steals more than it can collect, that funding gap must be filled one way or another. We have turned to multilateral institutions such as the International Monetary Fund, the World Bank, the New Development Bank and the African Development Bank to help bridge the gap. South Africa has a borrowing requirement of R475 billion for the year. My discussion with Director General of the Treasury, Dondo Mogajane, provides some insight into why the Treasury views this latest R11.4 billion loan from the World Bank as “cheap”, and also a sign of confidence in the South Africa’s commitment to structural reform. Mogajane, however, is a tired man. As well it should be. He says he wants this money to be used to finance the right interventions to revive our struggling economy as much as anyone. But oversight falls to bean counters in individual departments and entities, and ultimately to Parliament. The latter proved to be totally useless in this role during the mandate of Jacob Zuma. Be sure to listen to Dr Lumkile Mondi’s pragmatic reaction (embedded below) to the news of this latest loan and his insistence that we must keep executives and their cronies at bay. – Michel Appel

DG of the Treasury on the conditions of the loan

Money is never free. It’s a 13-year repayment period with a three-year grace period during which we have to repay this loan. It is a very cheap loan compared to what we would have obtained on the market. We’re looking at 300 to 400 basis points lower than what we would have gotten from the market with such a long-term loan. No conditions are attached to the loan. But there are prior actions that we have implemented as South Africa and things that we are committed to, like structural reform programs that we have been embarking on for some time.

On South Africa’s growing debt burden

South Africa operates at around 80% to 85% plus debt to GDP ratio. We have a huge deficit of R360 billion in one year. We need money. We need the economy to function. We need tax revenue. Unfortunately, the economy is not running at full capacity, which means that we will depend, in the short or medium term, on financing. It’s only been a year since we started reaching out to multilateral institutions and development banks. We went to the IMF last year, the New Development Bank and now the World Bank. These are cheap loans.

On whether South Africa can even afford to take on more debt

The reality is that until our economy is running at full capacity, we will have to borrow. We have to do it in a sustainable way. We have to make sure we approach this very carefully. We need to be more careful on the spending side. We cannot take on more debt just for consumption. We must continue to seek the debt that will stimulate the productive sectors of the economy.

On concerns about wasting resources

I’m not just concerned about spending the $750 million. I’m concerned about the R1.4trn we get every year. GA reports show erratic spending increases all the time. Is this the future we want to create for our children’s children? I do not think so. I think it depends on us as public servants; the integrity we have to show, the honesty we have to show in the way we carry out our duties. We need to strengthen our public oversight bodies, including the boards of public entities and public enterprises. We can’t look away. I think it is high time. We don’t want to sideline future generations like we are doing now, where money is just wasted.

On what is going well in South Africa

We are not a failed state. The state institutions of democracy are still strong like the courts, the Reserve Bank and the Treasury. We are here to make sure we defend what is left and instill a culture of ownership of this country. We shouldn’t all be painted with the same brush as public servants. A sense of conscience is still present in many institutions. We need to build state capacity.

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