World Bank talks with SA stall over bailouts of state-owned companies

Getty

The World Bank has told South Africa’s government it has to cut its wage bill to qualify for a loan of as much as $2 billion and agree the money won’t be used to bail out insolvent state companies, a person familiar with the situation said.

Those conditions have stalled negotiations on the loan that began in April, the person said, asking not to be identified because the content of the discussions have not been made public. The World Bank said it will only comment if an agreement is reached. South Africa’s National Treasury didn’t respond to requests for comment.

South Africa this year has turned to multilateral lenders for the first time since the end of apartheid, overcoming political opposition from within the ruling party, as it tries to kick-start an economy forecast to contract the most in nine decades. Finance Minister Tito Mboweni is expected to outline plans to fund a revival in output when he presents the medium-term budget on Wednesday and is under pressure to earmark more money to bail out state companies.

So far the country has borrowed $1 billion from the New Development Bank, the lending arm of the BRICS group of nations, $4.3 billion from the International Monetary Fund, R5 billion rand from the African Development Bank and $50 million from the World Bank.

All of those were deemed as emergency loans to combat the immediate impact of the coronavirus outbreak. The additional World Bank loan is a standard borrowing facility and therefore may carry more conditions.

South Africa’s state-owned companies, ranging from the national power utility Eskom to the state arms firm, are surviving on government bailouts and straining national finances. A recent pledge by the South African cabinet to support the insolvent national airline SAA has attracted criticism from opposition parties who say it is unviable.

South Africa is making an attempt to cut its wage bill. In April it reneged on an agreement to raise pay for the more than 1.2 million workers, saying it couldn’t afford it. That decision has been challenged legally by labour unions.

Still, any conditions could be difficult to enforce because loans and the proceeds of bond sales are not ring-fenced and are pooled in South Africa’s National Revenue Fund.

The only major loan by the World Bank to a South African state entity, a $3.75 billion loan extended to Eskom to help it build its Medupi coal-fired power plant, has run into complications, with the utility wanting the World Bank to waive a condition that stipulates that it must install equipment to reduce sulfur dioxide pollution. The flue-gas desulfurization equipment would cost R42 billion, Eskom has said.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
ZAR/USD
15.20
(-0.63)
ZAR/GBP
20.32
(-0.45)
ZAR/EUR
18.12
(-0.61)
ZAR/AUD
11.20
(-0.65)
ZAR/JPY
0.15
(-0.78)
Gold
1809.97
(+0.12)
Silver
23.29
(-0.15)
Platinum
963.00
(+0.40)
Brent Crude
48.73
(+1.57)
Palladium
2368.48
(+2.46)
All Share
57923.69
(+0.31)
Top 40
53084.13
(+0.27)
Financial 15
11645.28
(+0.04)
Industrial 25
79993.34
(+0.20)
Resource 10
52790.93
(+0.35)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, and I've gotten it.
22% - 340 votes
No, I did not.
51% - 804 votes
My landlord refused
28% - 436 votes
Vote