South Africa's World Bank dalliance is still developing

For the time being, the country's first meeting with the notorious lender may be more important from a policy standpoint than from an economic standpoint, since it signifies a significant shift in practice. Finance Ministry Although Enoch Godongwana's tenure at the helm of the National Treasury is only in its early stages, it has already set a precedent. On February 1, Godongwana was obliged to do something none of his predecessors had done before: explain why South Africa had taken general budget funding from the World Bank in the amount of more than R11 billion.

South Africa's total borrowing needs are estimated to be at R475 billion, with R77 billion in dollars. Part of such borrowing includes a World Bank loan in the form of a quickly spread development policy loan. The money will be used to settle South Africa's dollar-denominated commitments, according to Duncan Pieterse, the Treasury's head of asset and liability management.

Godongwana claimed that the bank had not imposed any constraints on the loan, which he said came with “extremely favorable terms,” including a three-year repayment vacation. In the context of a trillion-dollar budget for social programs and South Africa's open-market borrowing, which nearly every week exceeds the World Bank loan, R11 billion is a drop in the fiscal ocean. The loan was described as “pocket change” by Grieve Chelwa, an economist at The New School's Institute on Race, Power, and Political Economy in New York, and “sort of meaningless” by Michael Sachs, deputy chair of the finance and fiscal commission and former head of the Treasury's budget office.

However, South Africa's decision to dip its toes into the World Bank pool for the first time sends a significant policy signal. The country now has low levels of dollar borrowing, having avoided the original sin of being unable to borrow long-term in its own currency. However, if its chronic economic situation worsens – it now spends more on debt repayments each year than on health care – the potential for future dollar borrowing is enormous.

Protecting the loan

The World Bank, which was a key part of the Pax Americana that ruled the second half of the twentieth century, was notorious for implementing structural adjustment programs. These instructed poor countries how to rework their rules to favor capital, robbing them of their resources at enormous human cost. Dondo Mogajane, the treasury's director general, stated that “the World Bank now is significantly different from the World Bank of the 1970s, when structural adjustment was the rule of the day, and the bank was an extension of the United States' imperialist system.” “There will be no conditionality that will tie our fiscus and sell our soul,” he stressed.

While the bank's procedures may have altered, Chelwa claims that its “soul” has not. He went on to say that the bank, which is nearly hard to challenge because of its multilateral structure, continues to promote private-sector interests, largely at the expense of employees.

The World Bank no longer has direct control over the policy of the countries to which it loans money. However, Raj Patel, a research professor at the University of Texas at Austin's Lyndon B Johnson School of Public Affairs who has been tear-gassed while protesting against the bank's policies on multiple continents, added that “if the South African government wants to borrow on international capital markets, it can violate the bank's policy suggestions at its peril.”

Godongwana looked to be using the loan as a rod rather than a carrot in Parliament. “It will be damaging to the job we are doing” if the standing committee on finance rejects this loan, he added. If we go to the market, who is going to give us money if Parliament rejects it for whatever reasons, some ideological and others not？“ Godongwana went on to say that any legislative opposition to the loan might lead to a ”fiscal catastrophe in South Africa.

However, no such block appears likely, implying that South Africa will soon become even more entangled in a system of grants and low-interest loans from the Global North to the Global South, which the UN Special Rapporteur on Extreme Poverty, Philip Alston, recently described as “pale in significance when compared to the overall balance sheet.” Low- and middle-income nations contribute $756 billion in principle repayments and $213 billion in interest payments to lenders like the World Bank every year, according to Alston, who wrote in July 2020 that “poor countries continue to be net suppliers of resources to the rest of the world.”