World Bank Talks With South Africa Stall Over State Company Bailouts
World Bank Talks With South Africa Stall Over State Company Bailouts
(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 5 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.
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