Paying SA’s debt could cost more than healthcare spend, Ramaphosa warns

President Cyril Ramaphosa told the National Assembly on Thursday afternoon that various loans South Africa has pursued since the beginning of the Covid-19 pandemic would not sacrifice the sovereignty of the country.

While he acknowledged that “one or two” conditions might “raise eyebrows”, he said they were not debilitating enough to consider turning down assistance.

Since South Africa has received approval for loans from international finance institutions such as the New Development Bank, the African Development Bank, the International Monetary Fund and the World Bank, opposition politicians have questioned the conditions that came with these loans.

The coronavirus has infected some 616 000 South Africans, killing 13 502. The pandemic has also dealt a blow to the South African economy, as it has done in most countries around the world.

The IMF loaned SA $4.3 billion at a rate of 1% while the New Development Bank loaned $1 billion and the AfDB loaned R5 billion.

Government has reached almost R3 trillion in debt exposure. Finance Minister Tito Mboweni noted in his supplementary budget that consolidated budget spending, including the servicing of debt, would exceed R2 trillion for the first time in history.

Member of Parliament for the African National Congress, Noxolo Abrahams, asked Ramaphosa what measures the government had taken to finance debt repayments while maintaining expenditure on socio-economic needs.

The cost of debt

Speaking at a virtual National Assembly plenary during oral replies, Ramaphosa said the pandemic’s impact on the economies of many countries has been severe and government takes the impact on its debt seriously.

“Government debt is expected to reach R3.9 billion in 2020-21. This does not include the debt of state-owned entities. If not addressed, the cost of servicing this debt will eat into the savings that we have made, reducing the revenues on which government plans depend,” said Ramaphosa.

Ramaphosa said in the medium-term expenditure framework period, debt servicing costs were expected to exceed total government spending on healthcare alone if the situation does not change dramatically.

“We anticipate a small surplus in the primary balance, which is a difference between non-interest spending and revenue, debt should settle to 80% of GDP after which it should start gradually declining,” he said.

Economic Freedom Fighters MP Floyd Shivambu said the debt commitments meant that government would spend R200 billion on servicing debt. Shivambu asked Ramaphosa what the rationale was for borrowing from a dollar-based loan and spending that much on servicing the debt.

“We looked very closely at the cost structure of these loans and the loans we access locally. With a loan of 1.1%, the loans with were not linked to normal conditions, we felt that we could take advantage of the long interest rates of these loans,” Ramaphosa replied.

Conditions ‘could raise eyebrows’

African Christian Democratic Party MP, Steve Swart, said while he appreciated the IMF loan, he wanted clarity on the conditions and the letter of intent signed by South African Reserve Bank Governor Lesetja Kganyago and Minister of Finance Tito Mboweni.

He asked what impact recent reports of Covid-19 procurement corruption would have on South Africa’s standing in the eyes of investors and lenders.

Ramaphosa said the letter sets out a number of conditions similar to those of a loan from a consumer bank when a customer borrows money. He said these were not onerous conditions, because the conditions, such as debt reduction and policy reform, are in line with what government wants to do.

“There may well be one or two conditions that could raise eyebrows. I would be prepared to say that. But it is not so debilitating that you would say ‘no’ to getting a one-point-one percent loan. It does not sacrifice our sovereignty. We are not selling the silver of the country,” Ramaphosa said.

Ramaphosa is not the first government official to find himself defending the decision to commit to these loans.

Earlier this month, Mboweni dismissed speculation about the international loans as “urban legend”, saying the R4.3 billion was not a stop-gap for the R500 billion stimulus government announced in response to the pandemic.