SA’s ‘cheap’ R11.4bn World Bank loan – Treasury DG on the Ts & Cs

The South African Government has a putrid record of caring how it spends taxpayer money. Just by chance, the very lengthy Special Investigating Unit’s probe into government procurement related to Covid-19 came out on Tuesday confirming this. It’s grim reading, of course. Some 62% of contracts awarded were found to be irregular. It beggars belief but is actually unsurprising. When the government is spending, misspending and stealing more than it can collect, that funding gap has to be filled somehow. We’ve turned to multilateral institutions such as the International Monetary Fund, the World Bank, the New Development Bank and African Development Bank to help bridge the gap. South Africa has a R475bn borrowing requirement for the year. My discussion with Treasury Director General, Dondo Mogajane, provides some insight into why Treasury considers this latest R11.4bn loan from the World Bank as “cheap”, and also a sign of confidence in South Africa’s commitment towards structural reform. Mogajane is a weary man though. As well he should be. He says he wants this money going towards funding the right interventions to kickstart our ailing economy as much as anyone. But oversight lies with the bean counters in individual departments and entities, and ultimately Parliament. The latter has proved itself utterly useless in that role during Jacob Zuma’s term. Be sure to listen to Dr Lumkile Mondi’s no-nonsense reaction (embedded below) to news of this latest loan and his insistence that we must keep the cadres and their cronies at bay. – Michael Appel

Treasury DG on the terms of the loan

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

On South Africa’s growing debt burden

South Africa is running at about 80% to 85% plus debt-to-GDP ratio. We are running a huge deficit of R360bn in one year. We need money. We need the economy to function. We need tax revenues to come through. Unfortunately, the economy is not performing full steam, meaning we are going to rely – in the short to medium term – on financing. It’s only in the last year that we have started going to multilateral institutions and development banks. We went to the IMF last year, the New Development Bank and now to the World Bank. These are cheap loans.

On whether South Africa can even afford more debt

The reality is that as long as our economy is not firing on all cylinders, we will need to borrow. We have to do it in a sustainable way. We have to ensure we approach this very carefully. We have to be more careful on the expenditure side. We cannot take on more debt that’s just for consumption. We have to continue looking for debt that is going to boost productive sectors of the economy.

On concerns about the squandering of resources

I’m not only concerned about the expenditure of the $750m. I’m concerned about the R1.4trn that we get every year. The AG reports indicate irregular expenditure increases all the time. Is this the future we want to create for our children’s children? I don’t think so. I think it is up to us as public officials; the integrity that we have to display, the honesty we have to display in the way we perform our functions. We have to strengthen our public, oversight bodies, including boards of public entities and state-owned companies. We cannot look the other way. I think it is high time. We don’t want to indent future generations like we’re doing now, where money is just being squandered.

On what’s going right in South Africa

We are not a failed state. State institutions of democracy are still strong like the courts, the Reserve Bank and Treasury. We are there to ensure we defend what is left and to inculcate 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 left in many institutions. We have to strengthen the capacity of the state.

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