Proposed World Bank loan to South Africa will fuel patronage, not progress
16 October 2023
As South Africa grapples with unprecedented power cuts that have stunted economic progress, news has emerged that our Government is negotiating another potential $1 billion (approximately R19 billion) loan with the World Bank to reform our beleaguered energy sector.
The proposed loan raises serious questions regarding Minister of Finance, Enoch Godongwana's, assurances that he will stabilise public debt. Additionally, it is widely expected that Treasury is on course to miss its 2023/24 budget targets by a wide margin. Revenue is anticipated to fall short by tens of billions of Rands, while expenditures, fuelled by higher interest rates, state-owned enterprises (SOEs) losses, and an inflated wage bill, are poised to exceed Treasury's unrealistic February estimates.
Consequently, the originally projected R340 billion earmarked for servicing debt in February's budget — in which it was already the largest expenditure item — is set to increase and threatens to crowd out more critical funds intended for essential public services.
This is not to mention the Treasury's announcement in February that it will absorb over R254 billion of Eskom's debt through a relief scheme, on top of multiple bailouts amounting to hundreds of billions of Rands, only for Eskom to continue its downward spiral in operational and financial performance.
Given this context, the World Bank must realize that our SOEs, particularly Eskom, are economic sinkholes. Allocating additional funds will merely serve to fuel the ANC's already deeply entrenched patronage networks in the sector and exacerbate the inefficiencies that have plagues these institutions for years.
The core issue has never been a lack of funding for our SOEs but the unsustainable fiscal posture we continue to maintain. Our spending far outstrips our stagnant GDP growth, which is why our debt ratio has kept climbing even though the Treasury has been vocal on the need of introducing austerity measures. Funnelling more money into failing SOEs won't remedy the situation.
Instead of channelling more funds to them, the DA’s stance has always been that SOEs should either be privatized entirely or opened up to public/private partnerships to improve efficiencies and increase innovation.
We will be writing to the World Bank and advise them against extending additional loans that would further burden South Africa's already strained financial landscape. We will also write to Minister Godongwana and urge him to reconsider any steps toward accumulating more unsustainable debt.
In our upcoming Alternative Medium-Term Budget Policy Statement (MTBPS), the DA will present solutions to the current fiscal crisis that are designed to catalyse genuine economic growth and pivot South Africa towards a more financially sustainable trajectory.
Issued by Dion George, DA Shadow Minister of Finance, 16 October 2023
