reduce the wage bill, and no bailout for public companies
The World Bank has told the South African government it must cut its wage bill to qualify for a loan of up to $2 billion and agree that the money will not be used to bail out insolvent state-owned companies, a woman has said. person close to the situation.
Those conditions stalled loan negotiations that began in April, the person said, asking not to be identified because the content of the talks has not been made public. The World Bank said it would only comment if a deal was reached. The South African National Treasury did not respond to requests for comment.
This year South Africa has turned to multilateral lenders for the first time since the end of apartheid, overcoming political opposition within the ruling party as it tries to revive an economy that is expected to contract the most in nine decades.
Finance Minister Tito Mboweni is expected to present plans to finance a resumption of production when presenting the medium-term budget on Wednesday and is under pressure to allocate more money to bail out state-owned enterprises.
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, R5 billion ($310 million) to the African Development Bank and $50 million to the World Bank. .
All of these loans were considered emergency loans to combat the immediate impact of the coronavirus outbreak. The World Bank Supplementary Loan is a standard borrowing facility and may therefore have more conditions.
South Africa’s state-owned enterprises, ranging from the national electricity company to the state-owned armaments company, are surviving on government bailouts and straining national finances. A recent pledge by South Africa’s cabinet to back the insolvent national airline has drawn criticism from opposition parties who say it is unsustainable.
South Africa is trying to reduce its wage bill. In April he reneged on a deal to raise wages for more than 1.2 million workers, saying he could not afford it. This decision was legally challenged by the unions.
Still, all the conditions could be difficult to enforce because the loans and proceeds from bond sales are not ring-fenced and are pooled in South Africa’s National Revenue Fund.
The World Bank’s only major loan to a South African public entity, a $3.75 billion loan to Eskom Holdings SOC Ltd to help it build its Medupi coal-fired power station, went up against to complications, with the utility wanting the World Bank to waive a condition that it must install equipment to reduce sulfur dioxide pollution.
Flue gas desulfurization equipment would cost R42 billion, Eskom said.