The World Bank has approved South Africa’s request for a $750 million loan (R11.4 billion at current exchange rates).
In a joint statement issued by both World Bank and National Treasury, the loan is described as a low-interest development policy loan (DPL).
The statement says the loan will support government’s efforts to accelerate its COVID-19 response aimed at supporting a resilient and sustainable economic recovery.
It further stated that the loan will contribute to government’s fiscal relief package and will support the implementation of South Africa’s Economic Reconstruction and Recovery Plan (ERRP).
Director-General of National Treasury of South Africa, Dondo Mogajane says, “The World Bank budget support is coming at a critical time for us and will contribute towards addressing the financing gap stemming from additional spending in response to the COVID-19 crisis, it will assist in addressing the immediate challenge of financing critical health and social safety net programs whilst also continuing to develop our economic reform agenda to build back better.”
World Bank Country Director for South Africa, Marie Françoise Marie Nelly says, “This support aims to put the country on a more resilient and inclusive growth path by leveraging South Africa’s strength to mitigate the effects of the COVID-19 crisis through their strong social safety net and by advancing critical economic reforms.”
Previous loans received
Since the COVID-19 pandemic began, South Africa has received several loans as part of government’s broader financing strategy to access external financing from international financial institutions.
- In July 2020, South Africa received $288 million (the equivalent of R5 billion at then exchange rate) from African Development Bank.
- Also, in July 2020 South Africa received $4.3 billion (equivalent of R70 billion at then exchange rate).
- In April 2021, South Africa received $1 billion (equivalent of R14.5 billion at then current exchange rates) from New Development Bank also known as BRICS Bank.
South Africa’s rising Debt to GDP
While these loans currently bring fiscal relief to government’s fiscal, it is a burden for the future. South Africa’s Debt to GDP is currently at 69.9% of GDP (R4.3 trillion) and the National Treasury projected that for 2022/23 fiscal year the Debt to GDP will increase to 74.7% (R4 744.7 billion). Meanwhile, Debt-Service Cost is the fastest growing spending item as per projections of the National Treasury.
- R303.1 billion for 2022/23
- R334.4 billion for 2023/24
- R365.8 billion for 2024/25 (This is higher than the health and police services budgets)
This leads to debt service costs to be estimated at R1 trillion over the medium term and is highlighting the impact of South Africa’s rising debt stock.
In the video below from October last year, the International Monetary Fund says South Africa is expected to have an improved economic outlook: