Country was careful to avoid multilateral lenders, and with the World Bank loan it still needs to stay alert
Barely a month into its first Covid lockdown SA did a major policy about turn. From the birth of democracy the new ANC government had insisted that SA run its public finances so as to ensure it could control its own economic destiny — and stay well clear of borrowing from multilateral lenders such as the IMF and World Bank, which might tell it what to do.
Meanwhile, the IMF and World Bank responded to the health and economic crises by pledging hundreds of billions of dollars of cheap emergency loans to hard-hit countries — without the strings they used to attach with the much-maligned structural adjustment programmes of the 1970s and ’80s. The New Development Bank and African Development Bank were stepping up too. It wasn’t the first time some of these institutions had made project loans to SA.
Economists project a medium-term revenue overrun of anything from R150bn to R190bn, with the government’s annual borrowing requirement subsiding to levels well below those seen at the peak of the Covid crisis. Before this week at least, markets had been “risk on” over the past couple of months, favouring emerging markets such as SA, causing the rand to strengthen and the cost of 10-year borrowing, as reflected in rand bond yields, to trade down below recent peaks and far below early Covid peaks.
These institutions can lend cheaply because their own cost of borrowing is so low, reflecting their high credit ratings. The IMF is a triple A while the NDB is a double A plus — seven notches better than SA’s subinvestment grade double B minus rating, notes NDB vice-president Leslie Maasdorp. “It makes sense for SA to tap into some of this funding because the terms are so preferential,” he says.
But what of that contingency, or conditionality? These loans, especially the emergency Covid loans, are not conditional in the old sense. But that doesn’t mean no commitments are required. Those will generally be to policies and reforms countries have already embarked on of their own accord, not measures imposed by the multilaterals. The conditionality is in a sense backward looking, rather than forward looking. But the loans are policy linked rather than project linked.
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