SA secures R14bn Covid loan from BRICS bank
The South African government has secured a $1 billion loan from the New Development Bank (NDB).
At the current exchange rate, this is the equivalent of R14.5 billion.
The loan will support government in its efforts to contain the economic fallout of the pandemic and start economic recovery.
This will be the second batch of the Covid-19 Emergency Program Loans to NDB’s member countries, including Brazil, Russia, India, China and South Africa.
The first Covid loan to SA was paid out last year.
“The loan focuses on supporting economic growth through employment generation as well as support for labour force participation,” the bank said in a statement on Thursday.
“The loan will finance creation of employment opportunities in South Africa, in particular the first phase of the Presidential Employment Stimulus (PES) aimed to create and support about 700,000 job opportunities in the public sector, together with social protection measures for active labour market participants that temporarily lost their jobs, in order to help them remain in the labour market.”
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Chief economist at Econometrix Azar Jammine has welcomed the news of the loan.
“The South African government is obviously short of money and has to borrow a lot, not only to fund new projects to provide relief from the ravages of the Covid-19 virus, but also because low economic growth has meant a sharp reduction in government revenue, so any form of borrowing is welcome.”
But there is a catch.
Jammine believes the loan will only be fruitful if the loan conditions are the same as the first loan.
“Under normal circumstances when the government has to borrow, it has to pay between 7 and 10% interest depending on the maturity of the loan – here we are talking about a 5-year loan and that’s going to come at an interest rate of 1% or less so the debt serving costs in the interim are fairly low,” Jammine explains.
He adds the country would need to ensure it improves its financial prospects soon.
“The secret will be to ensure that somehow when the five years are up, the government either doesn’t have to borrow more money and that implies improving the fiscal situation from what it is right now; or alternatively, managing to secure a roll over of such a loan at such a low interest rate,” says Jammine.
“Otherwise in 5 years’ time, the interest costs will surge as a consequence of these loans, if they don’t come with a continuing rate of interest.”
Listen to Azar Jammine below:
