Minister of Finance Enoch Godongwana’s term at the helm of the National Treasury is still young, but it is already unprecedented. Speaking to Parliament’s standing committee on finance on 1 February, Godongwana was forced to do what none of his predecessors had: explain why South Africa has accepted general budget financing to the tune of more than R11 billion from the World Bank.
South Africa’s gross borrowing requirements are about R475 billion, of which R77 billion is in dollars. The World Bank loan, which comes in the form of a rapidly dispersed development policy loan, forms part of that borrowing. According to the treasury’s head of asset and liability management, Duncan Pieterse, the money will be used to pay South Africa’s dollar-denominated commitments – items like interest payments on the country’s dollar debt, United Nations subscriptions, International Monetary Fund payments and government operations abroad – as and when they are due.
Godongwana, who said the loan came on “very favourable terms”, including a three-year repayment holiday, claimed that the bank had not attached any conditions.
In the context of a budget for social programmes that extends into the trillions, and South Africa’s borrowing on the open market, which eclipses the World Bank loan almost every week, R11 billion is a drop in the fiscal ocean. Grieve Chelwa, an economist at The New School’s Institute on Race, Power and Political Economy in New York, called the loan “pocket change”, while Michael Sachs, deputy chair of the finance and fiscal commission and former head of the treasury’s budget office, described it as “kind of irrelevant” from a fiscal point of view.
South Africa dipping its toes in the World Bank pool for the first time does send an important policy signal, however. Having so far escaped the original sin of being unable to borrow over the long term in its own currency, the country currently has low levels of dollar borrowing. But if its chronic fiscal position – it already spends more on debt repayments every year than on health – gets much worse, the potential for borrowing in dollars in the future is huge.
Defending the loan
The World Bank, a central piece in the Pax Americana that reigned over the second half of the 20th century, infamously implemented structural adjustment programmes. These dictated to developing governments how to rewrite their regulations in favour of capital, bleeding them dry at untold human cost. The treasury’s director general, Dondo Mogajane, said it regarded “the World Bank today very differently to the World Bank of the 1970s, when structural adjustment was the order of the day, and the bank was an extension of the imperialist regime of the United States”. He added that there would be “no conditionality that will bind our fiscus and sell our soul”.
Chelwa said that while the bank’s methods may have changed, its “spirit” had not. He added that the bank, which is virtually impossible to sue owing to its multilateral structure, continued to further the interests of private enterprise, mostly at the expense of workers.
The World Bank is no longer able to directly influence the policies of the governments to which it lends. But Raj Patel, a research professor at the Lyndon B Johnson School of Public Affairs at the University of Texas at Austin, who has been tear-gassed on more than one continent while protesting against the bank’s policies, added that “if the South African government wants to borrow on international capital markets, it can violate the bank’s policy suggestions at its peril”.
In Parliament, Godongwana appeared to be using the loan more as a stick than a carrot. Even the notion that the standing committee on finance could reject this loan, he said, “will be detrimental to the work we are doing. If we go to the market, who is going to give us money if, for whatever reasons, some ideological and some not, Parliament would reject it?” Godongwana went on to suggest that any parliamentary block of the loan threatened to plunge South Africa in a “fiscal crisis”.
No such block appears likely, however, meaning South Africa will soon become further enmeshed in a system of grants and low-interest loans from the Global North to the Global South that the United Nations special rapporteur for extreme poverty, Philip Alston, recently said “pale in significance against the overall balance sheet”. Alston wrote in July 2020 that “developing countries continue to be net providers of resources to the rest of the world”, while low- and middle-income countries pay $756 billion in principal repayments and $213 billion in interest payments every year to lenders like the World Bank.