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Washington, DC - June 04, 2018: A pedestrian with an umbrella walks past the World Bank 's main building in Washington D.C., US in this file photo. Picture: 123RF/BUMBLEDEE
Washington, DC - June 04, 2018: A pedestrian with an umbrella walks past the World Bank 's main building in Washington D.C., US in this file photo. Picture: 123RF/BUMBLEDEE

The World Bank on Friday approved SA’s request for a $750m (R11.43bn) low-interest loan aimed at supporting an economic recovery from Covid-19.

The funds will be used to accelerate the country’s Covid-19 response aimed at protecting the poor and vulnerable from the adverse socioeconomic impacts of the pandemic, the Treasury said in a statement. Since the start of the pandemic the World Bank has shelled out $157bn in Covid-19 funding, the fastest and largest crisis response in its history

The Covid-19 pandemic prompted SA’s worst recession since World War 2, particularly hitting labour-intensive parts of the economy such as tourism and the restaurant industry.

In April 2020, the government had announced a R500bn support package to fight Covid-19, about a tenth of SA’s GDP, with R130bn of this to come from reprioritising the state’s budget, with the Treasury also looking for funding from local and international sources.

It had seemingly struggled with the World Bank, however, with the Washington-based lender reportedly taking issue with the size of the public-sector wage bill. This had prompted then-finance minister Tito Mboweni to say in late 2020 the World Bank could “keep their cents” if they wanted to impose policy prescriptions.

The IMF had approved a $4.3bn loan for SA in 2020, when SA had also received $1bn in emergency financing from the New Development Bank.

Also in 2020, the African Development Bank had approved a loan of $288m.

The Treasury did not provide any details about the cost of the financing, but the lending rate for the World Bank’s special development policy loans is the six-month London Interbank Offered Rate — currently 0.43% — plus a minimum of 2%.

The yield on SA’s benchmark 10-year bond is over 9%.

“The World Bank budget support is coming at a critical time for us and will contribute towards addressing the financing gap stemming from additional spending in response to the Covid-19 crisis,” director-general of the Treasury Dondo Mogajane said on Friday.

As the second largest economy in Africa, SA’s economic performance has spillover effects on other countries in the region, and recovery and successful economic development will provide an economic boost to the whole region, the Treasury said.

Update: January 21 2022
This article has been updated with additional information.

gernetzkyk@businesslive.co.za

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