In a joint statement, the World Bank and National Treasury have announced a R7.6 billion (€454.4 million, or $480 million) loan to South Africa, supposedly meant to finance the country’s Covid-19 vaccination programme retroactively (covering 47 million doses), and to “create the fiscal space needed to strengthen [South Africa] health system”.
The South African Federation of Trade Unions (SAFTU) expressed concerns and opposed a loan that was awarded for similar reasons in January this year (2022), amounting to R11.7 billion.
In response to critics who raised concerns that foreign-denominated debt accumulated through these loans – which do not increase South Africa’s export-earning capacity – will further compromise our country’s economic sovereignty, Minister of Finance Enoch Godongwane reasoned that the “terms and conditions” of that loan “were palatable compared to what is available in the market”.
The recent statement announcing the new loan did not specify how much interest will the loan be charged on, for the public to independently assess whether the interest is fair or not. This is dereliction of duty, since a typical World Bank loan not only has a higher interest rate than local loans because of the anticipated decline in the currency – e.g. from R15.3 to R16.2 in recent days – which means repayment occurs at a much higher effective rate. In addition, the Bank typically imposes neoliberal conditionality.
Whether the interest is high or not, is not our primary bone of contention with these loans. Our concern on compromising economic sovereignty are based on the premise that borrowing in foreign-denominated currency, always brings with it the possibility that we can default and such institutions can dictate our policy path.
Will the loan “create fiscal space”? The reality is that not only has Godongwana followed in the shoes of Tito Mboweni – by radically cutting health system fiscal support, which began right from the outset of the pandemic in February 2020 – but he has stomped even harder on poor people, by cutting health spending even further last October, in his first medium-term budget.
Tragically, our country’s vaccination rates have slowed to a crawl after the fifth wave of Covid and its variants. Recent studies have shown that black Africans are far more likely to become seriously ill and receive inadequate treatment in depleted public healthcare facilities than white, wealthier South Africa, and that includes even getting access to vaccines given how many of our poor citizens live so far from well-functioning clinics or dispensaries.
Given that we have had a vaccine manufacturing site up and running for eight months, and that we still need to provide the society another 50-80 million vaccine shots so further deaths can be prevented, there should be nationalisation and local financing of vaccine rollout.
South Africa’s gross foreign debt already stood high at $165 billion at the end of March 2022, up from $60 billion fifteen years ago. The specific government component of foreign debt is now above 20% of GDP, a level only exceeded as the economy crashed in 2020. In the late 2000s, that ratio was closer to 6%.
The component of this debt that is denominated in foreign currency was $81.3 billion.
Taking on further foreign denominated debt is already compromising the economic sovereignty of this country. That ANC government opting for the World Bank loan against domestic borrowing does not surprise us, because since the failed Growth, Employment and Redistribution (GEAR) programme co-authored by the World Bank in 1996, turning over our sovereignty to Washington bankers has become a bad habit.
Treasury’s claims that the World Bank is a “cheaper” lender are not true. Godongwana is opting for World Bank loans because last July, our government agreed to the World Bank Group Country Partnership Framework (CPF) 2022-26, which commits South Africa to a neoliberal underdevelopment path. Instead of bringing relief, these loans have strings attached to them i.e., commitment to structural reforms and fiscal consolidation that are bringing misery which is already unfolding.
We are not alone. Across the world, the World Bank and International Monetary Fund had an amplified, especially as a new round of debt crises caused a half-dozen sovereign defaults in 2020 alone, and enormous pressure to adopt austerity programs. Two major South Asian countries – Sri Lanka and Pakistan – are now on the edge of default, as well.
But when committing to lend $160 billion to states to address the pandemic (including $12 billion for vaccines) in the first phase of the pandemic, from June 2020-June 2021, the World Bank put brutal conditions on loans to Lebanon, Cabo Verde, Mongolia, and Tajikistan. The central contradiction, according to an Oxfam report, was the Bank’s class bias, insofar as “just 8 of the 71 World Bank Covid-19 health projects include any plans to remove financial barriers to accessing health services.” Oxfam also found that two thirds of Bank Covid-19 loans did not “increase the number of health workers, and that the 25 projects which do, have substantial shortcomings.”
More generally, we must bear in mind that when it comes to financing the health sector, the World Bank has contributed to decades of under-investment in clinics and hospitals. From the 1980s, healthcare was typically among the social spending commitments poor countries had to cut, often accompanied by Bank conditionality pushing private-sector health provision.
Finally, the World Bank is also imposing what can only be described as neoliberal conditionality on even Covid-19 loans. World Bank President David Malpass – a 2019 appointee of the notorious Donald Trump – called for structural reforms to end “excessive regulations, subsidies, licensing regimes, trade protection or litigiousness as obstacles…” which exacerbates corporate domination of poor countries.
Today, thanks in part to the IMF’s August 2020 loan of $4.3 billion and the World Bank’s January 2022 loan of $750 million, austerity is biting hard. The South African public sector headcount is being reduced aggressively and departments as well as provinces and municipalities are forced to cut expenditure on crucial divisions such as infrastructure financing and equipment because of the fiscal consolidation. The public servants are unlikely to get a pensionable wage increase that even keeps pace with inflation.
SAFTU refuses to believe that this loan will “create the fiscal space needed to strengthen [South Africa] health system and ensure financial and institutional sustainability.” We therefore reject this loan because it is compromising the country’s economic sovereignty, and will not benefit the people in the context of austerity and corruption.
If the World Bank is concerned with creating fiscal space needed to strengthen not only the health system, but all other departments which are offering basic services to the people, it must give South Africa and other countries the monies to boost their Covid-19 emergency response projects as grants and not loans.