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The World Bank has told the South African government that it has to cut its wage bill to qualify for a loan of up to $ 2 billion and agrees that the money will not be used to bail out insolvent state-owned companies, said a person familiar with the situation. .
Those conditions have stalled loan negotiations that began in April, said the person, who asked not to be identified because the content of the discussions has not been made public. The World Bank said it will only comment if a deal is reached. South Africa’s National Treasury did not 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 within the ruling party, as it tries to jump-start an economy that is projected to contract the most in nine decades.
Finance Minister Tito Mboweni is expected to outline plans to finance a revival of production when he presents the medium-term budget on Wednesday and is under pressure to put more money into bailing out state-owned 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, R5 billion ($ 310 million) from the African Development Bank, and $ 50 million from the World Bank. .
All of them were considered emergency loans to combat the immediate impact of the coronavirus outbreak. The additional loan from the World Bank is a standard loan facility and may therefore carry more conditions.
South Africa’s state-owned companies, ranging from the national electricity company to the state arms company, are surviving thanks to government bailouts and national financial stress. A recent promise by the South African cabinet to support the insolvent national airline has drawn criticism from opposition parties who say it is not viable.
South Africa is trying to cut its wage bill. In April, he breached an agreement to increase the salary of more than 1.2 million workers, saying he could not afford it. That decision has been legally challenged by the unions.
Still, any conditions could be difficult to enforce because the loans and proceeds from the sale of bonds are uncapped and pooled in the South African National Income Fund.
The only major loan from the World Bank to a South African state entity, a $ 3.75 billion loan to Eskom Holdings SOC Ltd to help it build its Medupi coal-fired power plant, has run into complications, and the utility wants That the World Bank 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 said.
Read: Mboweni on IMF loan of 70 billion rand from South Africa
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