The government has signed a $150m (R2.47bn) development policy loan agreement with the Opec Fund for International Development — its first with the institution — to support critical structural reform and improve infrastructure, the Treasury said on Wednesday.
“The loan will support the government’s ongoing reform programme aimed at unlocking infrastructure bottlenecks, particularly in the energy and freight transport sectors, which are critical for enabling inclusive economic growth, improving service delivery and fostering job creation,” it said in a statement.
The announcement comes a day after Stats SA reported that unemployment surged to 32.7% in the first quarter from 31.4% in the final quarter of last year, highlighting how the economy is not growing sufficiently to create much-needed jobs.
The loan has a six-year maturity with a two-year grace period, at an interest rate pegged at the six-month secured overnight financing rate — a benchmark rate used in loans and financial contracts in the US — with a 1.25% margin.
Last year, South Africa secured a $1.5bn development policy loan from the World Bank towards improving electricity infrastructure and reforming freight rail and ports, as well as supporting low-carbon transition projects.
Deputy finance minister David Masondo defended the loan as being aligned with the Treasury’s broader commitment to responsible and sustainable borrowing.
The government also landed a $474.6m loan from the African Development Bank to support energy security, decarbonisation, infrastructure governance reforms, and transport and electricity sector improvements and to advance its just energy transition programme.
The Treasury argues such loans are cheaper and more flexible than raising all funding through local bond markets.
“The financing terms of the loan are aligned with the National Treasury’s financing strategy, which seeks to diversify funding sources, secure cost-effective financing and minimise increases in debt service costs,” the department said of the Opec fund loan on Wednesday. “The loan provides favourable pricing and flexible repayment terms compared to conventional market funding.”
But critics will argue this new loan undermines the Treasury’s mission statement in the February budget of reining in spending and stabilising its gross debt at 78.9% of GDP in 2025/26, dipping to 77.3% in 2026/27 and 76.5% by 2028/29.
Last week, Moody’s said government debt is still too high and costly at 80% of GDP, limiting the country’s fiscal space to absorb shocks. But it added that the February budget confirmed South Africa’s improving fiscal position, supporting the ratings agency’s expectation of debt stabilising this year and gradually declining.
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