Treasury will use the $750m loan approved by the World Bank last month to meet its dollar-denominated commitments so that costs can be prudently managed, a senior Treasury official said on Tuesday.
Treasury rarely converts funding provided in dollars into rand because of the associated costs, Duncan Pieterse, the head of Treasury’s asset and liability management division, told MPs on Tuesday. An exception was 2021 due to pressures on the fiscus as a result of the Covid-19 pandemic, “but we do not intend doing it this year”.
Pieterse and Treasury director-general Dondo Mogajane were part of a Treasury team led by finance minister Enoch Godongwana who appeared before parliament’s finance committee to answer questions about the rationale for the loan and the conditions attached to it.
The meeting was called by EFF MP Floyd Shivambu who urged the committee to reject the loan from an institution which served the interests of its “imperialist masters” in controlling the less developed countries to maintain the status quo.
The committee rejected the proposal.
The DA and the Freedom Front Plus questioned the loan, noting that the government’s debt service costs were crowding out service delivery and that Treasury’s goal is to reduce debt.
Treasury has a risk benchmark for its foreign debt which limits it to no more than 15% of total debt to ensure that foreign debt does not become a systemic risk to SA as happened in Latin America and elsewhere.
Mogajane said the $750m was a development policy loan granted on concessional terms that will be used to provide provide budget support. The loan was provided by the World Bank on the basis of SA’s sound performance in dealing with the pandemic.
He emphasised that no conditions were attached to the loan.
Once the loan agreement is signed the funds will be released and be kept in Treasury’s forex account with the Reserve Bank and will be used in line with Treasury’s liquidity requirements, he said.
Mogajane noted that government’s revised gross borrowing requirement for the 2021/22 fiscal year was R475bn. Of this, R77.6bn, or $5.3bn, would be dollar denominated, including the World Bank loan. Other dollar debt to be raised this year is $1.5bn from the New Development Bank and $3bn from capital markets.
Mogajane said SA would look at concessional loans from development finance institutions as long as the conditions attached did not impact on sovereignty. “No-one is going to dictate to us on how the macroeconomic strategy and stance of the country should be. We have been jealously guarding that.”
Godongwana added that SA could “pick and choose” where to use the World Bank loan, which was provided at an estimated 300 basis points lower than the market rate and gave SA a repayment holiday of three years. “The terms are very favourable,” he said.
“Should the committee reject this [the loan], this would be detrimental to the work that we are doing. If we go to the market who is going to give us the money if for whatever reason, some ideological some not, parliament rejects it? It will plunge us into a fiscal crisis,” Godongwana said.
SA could meet its debt obligations “for now” but if the debt trajectory was not changed “we may not meet our obligations. Our commitment is that we must change that debt trajectory so that we are able to meet our obligations. This loan on its own is not a threat to those obligations,” he said.
MPs expressed dissatisfaction at Godongwana being 30 minutes late for the meeting and then joining it while driving, saying it was a sign of disrespect.
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