SA has secured its first major loan from the World Bank in the democratic era, after a lengthy negotiation, National Treasury and the international financial institution announced on Friday.
The loan for $750m (around R11.4 billion), at a highly concessional rate, will make a significant contribution to lowering SA’s borrowing costs for the year, which escalated over the past five years as investors have come to view SA as increasingly risky. World Bank concessional interest rates are typically in the region of 1% or 2%.
The yield on SA’s rand denominated long-term bonds, which is the principal way that government raises funding, has risen to over 9%
“Because these loans are so highly concessional they have become an important part of diversifying our funding strategy in an environment where monetary conditions are tightening and our yields are quite high,” said National treasury head of asset and liability management Duncan Pieterse.
SA first began negotiating the loan in 2020 when the Covid-19 pandemic took hold. At the time then finance minister Tito Mboweni expressed scepticism that a loan agreement would ever be reached given the detailed requirements of the bank. Pieterse said the length of time in reaching an agreement was partly due to the loan being a “development policy loan” which requires a very involved process and it being the first major loan.
Development policy loans, which are not specifically for developing policy but for general funding, are granted on the basis of “prior actions” by government, which demonstrate a commitment to growth and building economic resilience. The loan programme document will be made available on the World Bank’s website in the coming days.
World Bank funding has been controversial in SA, particularly among the ANC and its allies, due to the role that the bank and IMF have played in the past in structural adjustment programmes of developing countries.
In a joint statement, the bank and Treasury said the loan would “support the implementation of South Africa’s Economic Reconstruction and Recovery Plan”.
