The chaos surrounding the non-tabled national budget in February, and the subsequent wrangling in parliament and the courts, has roused public concern about issues of consultation and transparency.
Too often the public has been relegated to the role of spectator on public finance decisions that affect our ability to realise our constitutional rights. This has especially been the case when it comes to the government’s borrowing from international lending institutions.
The versions of the 2025 national budget we have seen so far have featured some puzzling inclusions. For instance, there’s the unexplained change in the interest rates on already-disbursed New Development Bank (the so-called Brics bank) loans. The unexplained change and its potential effect on debt servicing costs should invite sharp scrutiny given that high and rising borrowing costs have been the main source of SA’s debt problem.
The government has also increased its indebtedness to the French Development Bank (AFD), even as there has been no publicly available appraisal of previous loans (for example, the 2022 just energy transition loan) to show how effectively the funds were used. This fits an overall pattern of opaqueness, unilateralism and lack of accountability, which we also observed in previous national budgets.
Going back to the 2024 Budget Review, tucked away on page 77 in table 7.5 the careful reader would spot something unusual — the last entry lists the “government of Canada” as one of SA’s international lenders.
International official lenders have historically been a scourge to developing countries, as they have used debt as an instrument to control those countries’ economic and social policies.
Alarmingly, unlike the official lenders (mainly international finance institutions — IFIs) listed in the table, the only information we have for the government of Canada is the value of the loan. We have no information on the release date of the funds, the applicable interest rate or the grace period before the first payment is due.
This particular loan has not been reported on by the media, nor has the loan been published in any other place on government websites. Parliament, as part of its approval of the annual budget, it appears, has also not raised any questions about the loan.
It is troubling that only a meticulous reading of an annexure to the Budget Review reveals this paltry information. This is symptomatic of the persistent lack of transparency, which has come to define nonmarket borrowing by the government.
Ironically, one often gains more clarity about loans through other governments’ and IFIs’ websites. Four months after parliament approved the budget, Canada’s prime minister announced the country had lent C$120m (equivalent to R1.68bn or what the government is spending on the early childhood development grant for 2024/25) to the SA government.
According to the Canadian government’s website, the loan agreement was signed on March 3 2024. The interest rate is likely to be about 3.4% a year. There is also no grace period, which means taxpayers must start repaying the loan with immediate effect, for an undisclosed length of time.
International official lenders have historically been a scourge to developing countries, as they have used debt as an instrument to control those countries’ economic and social policies.
The timing of the signing of the loan agreement raises questions about the effectiveness of parliament’s budget oversight. The loan agreement was signed on March 3 2024, whereas the budget was only passed by parliament on July 31 2024. This means parliament had at least four months to interrogate the National Treasury on the details of the loans before the budget was approved.
It is deeply troubling that parliament — and by extension the public — is kept in the dark about these significant loans taken to finance what is purportedly one of the government’s most ambitious undertakings — the just energy transition. At the same time, parliament has arguably not exercised its powers to try to elicit more detailed information about these loans.
History tells us there is a grave danger in concluding deals with IFIs with limited transparency. Bilateral creditors are wholly owned by governments, and their mandates and operations are a result of internal political processes recipient countries may not be party to. Similarly, multilateral creditors such as the World Bank and IMF are highly political organisations, which is reflected in multiple ways:
- Western countries hold a disproportionately large share of voting power in the World Bank and IMF — the two pre-eminent IFIs — in effect allowing them to control the practices of these institutions; and
- IFIs typically prescribe particular ways in which a country’s economy must be run or how a country must address its development issues. For example, some have argued that the World Bank’s $1bn loan for low-carbon transition to SA intends to entrench a private-sector-centric paradigm for the climate transition.
Despite the risk that borrowing from official creditors can lead to unwarranted influence on domestic policies, the Treasury unilaterally decides where it wants to borrow money from, negotiates and signs loan agreements without any involvement from parliament, and does not publicly release either the loan agreement documents or the full details of the loan such as conditionalities or “prior actions” that the country must legally adhere to.
To give other fairly recent examples, SA received two loans from the French and German development banks in 2022. When MPs asked the Treasury about the conditionalities of these loans, it said there were no conditions attached to these loans.
Yet browsing through the loan agreement documents, which the Institute of Economic Justice (IEJ) acquired only through legal force by lodging a Promotion of Access to Information Act request, shows this to be false. Instead, we find that the government agreed to a set of legally binding prior actions. These included “to increase competition and power generation capacity in the energy sector” and “closely align SA with Paris Climate Agreement regarding mitigation of GHG [greenhouse gases]”.
The public must remain vigilant, understanding both the potential advantages and pitfalls of such loans...
When confronted in parliament, the Treasury has remained coy about the presence and nature of conditionality. We have seen this play out with an EFF representative asking the finance minister if there are “any significant covenants or conditions attached to the loans”. The minister did not disclose any of these, and simply directed the parliamentarian to an irrelevant database containing the financial terms of domestic national debt.
One counterbalance to the power wielded by IFIs is to require parliament to safeguard national sovereignty by approving all loan agreements. Laws that require parliamentary approval or ratification for IFI loans already exist in more than 50 countries. In that regard, SA would not be an anomaly and would have many blueprints to follow.
We highlight the issue of loans from official bilateral and multilateral creditors as they are becoming an increasingly important source of public spending. Since 2020 the state has borrowed more than R200bn from these IFIs. This is about 4% of the total size of outstanding national government debt. The use of IFI lending has expanded to financing for the just energy transition and, according to the 2024 medium-term budget policy statement, to finance public infrastructure.
In 2025 establishing a culture of transparency in international lending is essential. The public must remain vigilant, understanding both the potential advantages and pitfalls of such loans, while MPs must implement robust safeguards to ensure fiscal gains do not come at the cost of surrendering policy sovereignty to unelected and unaccountable institutions.
• Liso Mdutyana and Shikwane Warren Makoga are with the Institute for Economic Justice. Matshidiso Lencoasa is with the Budget Justice Coalition.
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