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Home Business Economy

Government accepts R11.4 billion loan, despite overwhelming debt

Quinton Boucher by Quinton Boucher
24 Jan 2022
in Economy, Government, South Africa
Reading Time: 5 mins read
0
Government accepts R11.4 billion loan, despite overwhelming debt

Estimated reading time: 4 minutes

South Africa’s request for a $750 million (R11.4 billion) development policy loan has been approved by the World Bank Group‘s Board of Executive Directors (DPL). The decision does, however, adds to an already ridiculously high debt.

Nonetheless, according to the National Treasury, this loan will help the South African government accelerate its COVID-19 response. An initiative that aims to protect the poor and vulnerable from the pandemic’s adverse socioeconomic effects while also promoting a resilient and sustainable economic recovery.

The equation could appear a bit concerning to the average citizen for various reasons. One reason could be that the national debt is paid via TAX and VAT. Therefore, if the loan is only aimed at a specific initiative and not the country as a whole, should you be responsible for the owing amount?

Moving on, the DPL states that it supports South Africa’s Economic Reconstruction and Recovery Plan (ERRP), which is well-aligned with the World Bank’s Crisis Response Approach. 

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“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,” says Dondo Mogajane, Director-General of National Treasury of South Africa.

Furthermore, Mogajane claims that it will help address the immediate challenge of financing critical health and social safety net programs while jointly developing the country’s economic reform agenda to rebuild better.

However, even though the funding appears to be a low-interest loan, the states that it will contribute to the “government’s fiscal relief package” while simultaneously “reinforcing South Africa’s decisions on how to best provide relief to the economy and those most impacted by the current crisis.” 

But in a country rocked by the pandemic at all levels of society—how does the government determine the benefactors? I guess time will tell.

Moreover, when looking at the South African Government’s track record, two principal issues jump out. 

Firstly, South Africa is already saddled with massive debt, and the National Treasury has not provided clarity on the loan’s terms.

As a result, Dr Dion George, the Democratic Alliance’s Shadow Minister of Finance, stresses, “In the absence of a loan programme document from the World Bank or an explanatory note from Treasury, South Africans have no way of knowing the purpose of the loan and the associated repayment terms.”

Dr George further highlights that South Africa’s considerable national debt burden already sees R303 billion per year paid to service debt. “We therefore cannot afford to take on additional debt with no plan to boost economic growth,” Dr George emphasises.

With the debt to GDP ratio currently standing at over 70%, he states that South Africa faces the real risk of falling into a debt spiral that can trigger a sovereign debt crisis.

“It is therefore important that the government holds the fiscal line and does not increase the country’s debt exposure.”

As a democratic country, Dr George believes that the Minister of Finance, Enoch Gondongwana, must at the very least clarify how the loan will be spent and repaid.

“The current debt level is already crowding out service delivery to the most vulnerable members of society and accruing debt for consumption will result in stagnation at best,” he declares.

For South Africa, the prospect of becoming ensnared in a debt trap is an authentic looming reality. Additionally, more debt will not solve South Africa’s economic problems.

To sort out South Africa’s socioeconomics, Dr George states that resolving incoherent economic policy and addressing staggering levels of corruption are required. He believes that pragmatic economic policy is needed to attract investment capital and accelerate economic growth.

Outraged at the loan, the Economic Freedom Fighters (EFF) have also stepped up, claiming that they reject the loan with contempt.

In a statement, the party stressed, “National Treasury reasons for the loan are unrelated, difficult to follow and purely misdirected in the absence of coherent and clear economic reform.”

On top of this, the EFF states that it maintains that South Africa does not have economic reform policy. “The National Treasury claims to be leading economic recovery and reform. However, the latest GDP figure of -1,5% decline, unemployment of 34.9% and the collapse of public finances mired by irregular, unauthorised and fruitless expenditure tells a story of incompetence, mismanagement, and the complete government failure.”

With these concerning figures in mind, the EFF says it has written to the Chairperson of the Finance Standing Committee to demand an urgent meeting and answers from the Finance Minister.

“These senseless and irrational loans are nothing but our sovereign and future bondage to the control and ownership of rating agencies, financers, and the Washington Consensus,” the EFF concludes.

What are your thoughts on this? Share your views in the comment section below.

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Tags: CorruptionDemocratic Alliance (DA)Economic Freedom Fighters (EFF)economyGovernmentLoansNational TreasurySouth AfricaSouth Africa National DebtWorld Bank Group
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