By Antony Sguazzin for Bloomberg
World Bank officials have told South Africa’s government it will need to reduce its wage bill to secure a loan and that it doesn’t want the money to be used to bail out insolvent state companies, a person familiar with the situation said.
Those demands have stalled negotiations on the loan that began in April, the person said, asking not to be identified because the content of the discussions have not been made public. Earlier this year, the South African government said it was seeking $2 billion from the bank, but later said the World Bank had $900 million available.
A World Bank spokesperson said the bank was not seeking to impose conditions around aid to state companies or trimming the wage bill, and that the $2-billion figure was incorrect. The spokesperson also said the bank hasn’t lent any other money to South Africa this year. Earlier this year, the government said it expected $50 million in virus-related funding from the lender.
In an earlier response, the World Bank said it could not comment aside from confirming that talks are ongoing. South Africa’s National Treasury didn’t respond to requests for comment.
South Africa this year has turned to multilateral lenders for the first time since the end of apartheid, overcoming political opposition from within the ruling party, as it tries to kick-start an economy forecast to contract the most in nine decades. Finance Minister Tito Mboweni is expected to outline plans to fund a revival in output when he presents the medium-term budget on Wednesday and is under pressure to earmark more money to bail out state companies.
So far the country has borrowed $1-billion from the New Development Bank, the lending arm of the BRICS group of nations, $4.3 billion from the International Monetary Fund and R5-billion rand ($310-million) from the African Development Bank.
All of those were deemed as emergency loans to combat the immediate impact of the coronavirus outbreak. An additional World Bank loan would be a standard borrowing facility and therefore could carry more conditions.
South Africa’s state-owned companies, ranging from the national power utility to the state arms firm, are surviving on government bailouts and straining national finances. A recent pledge by the South African cabinet to support the insolvent national airline has attracted criticism from opposition parties who say it is unviable.
South Africa is making an attempt to cut its wage bill. In April it reneged on an agreement to raise pay for the more than 1.2 million workers, saying it couldn’t afford it. That decision has been challenged legally by labor unions.
In August South African President Cyril Ramaphosa said the country had rejected the initial conditions it would have need to have accepted to access the funds, without giving more detail.
Any conditions could be difficult to enforce because loans and the proceeds of bond sales are not ring-fenced and are pooled in South Africa’s National Revenue Fund.
The only major loan by the World Bank to a South African state entity, a $3.75 billion loan extended to Eskom Holdings SOC Ltd to help it build its Medupi coal-fired power plant, has run into complications, with the utility wanting the World Bank to waive a condition that stipulates that it must install equipment to reduce sulfur dioxide pollution. The flue-gas desulfurization equipment would cost 42 billion rand, Eskom has said.
By Anneken Tappe for CNN
The Covid-19 pandemic and subsequent lockdown measures have thrown the world economy in turmoil. Even as countries are reopening, the World Bank predicts this year, the globe will have its deepest global recession in 80 years.
The pandemic, which has infected some seven million people worldwide, led countries to order citizens to stay at home and business to grind to a halt.
Worldwide gross domestic product — the broadest measure of economic growth — will contract 5.2% in 2020, according to a report by the World Bank. That’s despite the unprecedented fiscal and monetary policy support governments around the world have been rolling out. Trillions of dollars have been deployed to help companies stay in business, keep cash in consumers wallets and let financial markets function properly.
Still, advanced economies, such as the United States or Europe, are projected to shrink by 7%. America’s economy is expected to contract by 6.1% before rebounding in 2021.
This quarter will almost certainly be the worst for the Western world, but most of Asia felt the brunt of the outbreak in the first months of the year.
China, the world’s second largest economy, is projected to grow 1% this year, down from 6.1% in 2019, before bouncing back.
The pandemic recession will probably leave deep scars: Investments will stay lower in the near term, and global trade and supply chains will erode to some extent. On top of that, millions of people have been laid off, causing the biggest blow to America’s labor market since the Great Depression. The US Federal Reserve has stressed its concern about laid-off workers getting detached from the labor force as a result of the crisis.
The recession would be even worse if it took longer than expected to bring the pandemic under control, or if financial stress forced a number of companies into bankruptcy.
On Monday, a monthly survey from the American National Association of Business Economics found that a second wave of infections was the biggest risk to the US economy.
Emerging economies are in particular danger, because their health care systems are less resilient and they are more exposed to woes in the global economy through supply chains, tourism and reliance on commodity and financial markets, the World Bank report said.
At the same time, low oil prices, which collapsed in April, could help jump starting the economy in the initial stages of reopening, the World Bank acknowledged.
The World Bank has become the latest to downgrade SA’s economic growth forecasts for this year and next, warning that the slowdown in growth coupled with the drought would drive thousands more people into poverty.
The bank sees SA’s economy growing 0,8% this year from an earlier forecast of 1,4%. The forecast for next year was revised downwards to 1,1% from 1,6%. The Bank released its South African economic update on Tuesday.
It said that while it did not forecast a recession for SA, the extremely low levels of economic growth would lead to further declines in per capita incomes.
The “dramatic deterioration” in the economic growth outlook over the past few months reflected a sharper economic slowdown in China, lower commodity prices, domestic policy uncertainty and the drought, World Bank lead economist for SA Catriona Purfield said.
The drought could have shaved off 0,2 percentage points from gross domestic product last year and pushed an estimated 50 000 people into poverty, the bank said.
With monetary and fiscal policy already “constrained, the onus is on other reforms to lift the long-term growth trajectory” of SA, Purfield says.
One of these reforms was highlighted as improving competition policy to reduce input costs. Competition could also be supported through better regulation, the bank says.
The bank estimates that SA will need to grow at more than 7% on average from 2018 if it is to significantly reduce poverty and double incomes.
By Ntsakisi Maswanganyi for www.bdlive.co.za