National Treasury secures R26bn World Bank loan in strategic move for infrastructure reforms

Daily Maverick

4 days ago

South Africa has secured a R26-billion loan from the World Bank to modernise our infrastructure – without adding to sovereign guarantee burdens. But favourable terms mean little without delivery. Can South Africa finally convert reform pledges into real power, rail, and fiscal performance?
In a bid to shift our faltering economy out of low gear, the National Treasury and the World Bank have inked a $1.5-billion (R26.5-billion) Development Policy Loan agreement aimed at unlocking long-promised, but long-delayed, structural reforms across the country's infrastructure backbone.
Sweet deal, soft start
The loan, which was finalised on Monday, 23 June 2025, comes with some pretty good terms — definitely better than if South Africa had just gone to the open market:
We have 16 years to pay it back. So, it's a long-term plan, not a quick smash-and-grab.
We don't have to start paying anything back for the first three years. This is a 'grace period' that gives us some breathing room to get things in order before the first instalment is due.
The interest rate isn't fixed. It's a 'floating rate', which means it will change over time. It's tied to something called the six-month SOFR, which is a very stable and trusted international benchmark rate for US dollars. On top of that, we pay an extra 1.49%.
'If the borrowing is associated with capital investment, then there's the opportunity to generate a return that will help service the debt,' Old Mutual Wealth strategist Izak Odendaal told Daily Maverick. 'Borrowing to fund recurrent expenditure is much harder to justify.'
Spreading the spending power
Political and economic analyst Daniel Silke said the real issue is how it will be spent. 'Will it be spent credibly, efficiently, and without graft and corruption? We've gone through a decade or two where we have not invested in domestic capital formation. The backlog in infrastructure… now ultimately has to be funded, certainly in part, by external loans like this.'
According to the National Treasury, the deal is designed to 'enhance the efficiency, resilience, and sustainability' of South Africa's public infrastructure services.
The main focus: policy reforms in the energy and freight transport sectors that can enable broader infrastructure modernisation and private investment.
'This agreement reinforces the strong and constructive collaboration between the World Bank and the government of South Africa,' the National Treasury noted in the release announcing the loan's approval.
Show me the money
It's important to distinguish the loan's structure and purpose. This is a Development Policy Loan, meaning the funds are not project-specific. Instead, they are general budget support disbursed in tranches conditional upon meeting agreed reform milestones.
The Treasury says these reforms centre on:
Improving energy security.
Boosting freight transport competitiveness.
Advancing the just energy transition.
Unlike project loans, this money won't directly pay for power stations or rail upgrades, but is aimed at incentivising reform across state institutions like Eskom and Transnet — and unlocking further capital by stabilising policy conditions.
Disbursements are tied to measurable regulatory or governance benchmarks — such as unbundling electricity transmission or enabling third-party rail access — designed to unlock future private capital inflows.
Reform or rewind
The loan lands at a time of acute public finance strain: sluggish growth, surging debt service costs, and deep political gridlock following the collapse of a proposed VAT hike.
With fiscal consolidation plans fraying under coalition tensions, the Development Policy Loan becomes not just a financial tool but a litmus test of South Africa's political capacity to implement reform.
South Africa's history with reform-tied financing is mixed. From unbundling Eskom to fixing port backlogs, targets are often missed, deferred, or diluted. The Treasury insists this loan aligns with its broader fiscal strategy: to avoid contingent liabilities, limit market borrowing and crowd in private capital.
Transmission tangle — another $500-million
While the Development Policy Loan grabs headlines, it is part of a broader ecosystem of multilateral support.
Reuters reports that the World Bank Group is also weighing a $500-million contribution to a proposed credit guarantee vehicle meant to underwrite South Africa's planned $25-billion transmission build-out.
This facility would be a stand-alone fund, absorbing project risk and unlocking private sector participation without drawing on sovereign guarantees.
The goal: unlock up to 20GW of stalled renewable energy capacity, particularly in remote provinces like the Northern and Eastern Cape.
The Treasury plans to contribute $100-million in junior capital (first-loss tranche), eventually scaling to $500-million. Discussions are under way with partners including Miga, the International Finance Corporation, DBSA, AfDB, KfW, and British International Investment.
While discussions remain at the proposal stage, the Treasury expects to finalise initial commitments before the 2026 Budget, contingent on co-financier alignment.
Can we afford this?
On paper, the Development Policy Loan offers low-cost, flexible financing. But it's still dollar-denominated debt in a fiscus under pressure.
Repayments begin after three years (on principal), but interest accrues and must be made in hard currency, exposing the Treasury to forex volatility.
With a floating rate (SOFR +1.49%), repayments will rise if global interest rates increase.
The Treasury already spends over 20% of its main budget on debt service, and gross loan debt is projected to exceed 75% of GDP.
Odendaal notes that this loan remains within the Treasury's foreign borrowing limits, but South Africa must tread carefully: most debt is rand-denominated for a reason.
Odendaal notes this loan remains within Treasury's foreign borrowing limits, but South Africa must tread carefully: most debt is rand-denominated for a reason.
Reform isn't optional
While the World Bank does offer oversight and monitoring, Odendaal warns that no loan is immune to governance risk.
'There's no guarantee that the money is going to be allocated 100% efficiently,' he said. 'But it's probably a better option than trying to raise money in the market.'
For now, the $1.5-billion is a breath of fresh air that, with luck, will offset short-term fiscal pressure and offer credible support to reformists inside the Treasury. The key to whether it will be maximised effectively, however, will have to come squarely from State-Owned Enterprises and industry.Transnet, Prasa and Eskom will benefit financially, but in order for South Africa to do so, governance will need to improve correspondingly to make the loan less a windfall, and more a structural change. DM