Latest news with #DevelopmentPolicyLoan
Daily Maverick
5 days ago
- Business
- Daily Maverick
National Treasury secures R26bn World Bank loan in strategic move for infrastructure reforms
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 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
IOL News
6 days ago
- Business
- IOL News
South Africa signs R26bn loan agreement from World Bank to boost economic reforms
South Africa faces a deepening jobs and growth crisis, with unemployment more than 31% and average GDP growth below 1% over the past decade. Structural barriers—including weak governance, limited competition, and skills shortages—have slowed progress. Image: Henk Kruger/Independent Newspapers The National Treasury on Monday said the government has signed a $1.5 billion (R26bn) Development Policy Loan (DPL) from the World Bank. DPLs are robust, flexible and quick-disbursing financing instruments that help countries achieve development results by supporting a program of policy and institutional reforms provided through general budget financing. This agreement reinforces the robust and constructive collaboration between the World Bank and the South African government, paving the way for transformative changes aimed at elevating the country's economic landscape. This strategic partnership aims to bolster structural reforms that enhance the efficiency, resilience, and sustainability of the nation's infrastructure services, particularly in the crucial sectors of energy and freight transport. This multi-faceted loan marks a significant intervention in the face of persistent economic concerns, including low growth and alarmingly high unemployment rates. South Africa faces a deepening jobs and growth crisis, with unemployment more than 31% and average GDP growth below 1% over the past decade. Structural barriers—including weak governance, limited competition, and skills shortages—have slowed progress. Infrastructure services have declined: in 2023, power outages cut GDP by 2% and cost 500,000 jobs, while rail and port inefficiencies reduced exports by around 20%. Analysts believe that this infusion of capital could act as a catalyst for dismantling existing infrastructure bottlenecks – a critical step towards enabling inclusive economic growth and fostering job creation across various sectors. The agreement is constructed around three primary pillars of reform: Improving energy security: Ensuring a reliable and stable energy supply is pivotal for economic development. Ensuring a reliable and stable energy supply is pivotal for economic development. Enhancing freight transport efficiency: Revamping transport services will streamline logistics and trade, promoting economic vibrancy. Revamping transport services will streamline logistics and trade, promoting economic vibrancy. Supporting a low carbon transition: Aligning with global sustainability goals, this focus is set to strengthen South Africa's commitment to an environmentally friendly economy. The financing terms of the loan are carefully aligned with the National Treasury's broader financing strategy, which is instrumental for maintaining the government's financial stability.
Barnama
30-05-2025
- Business
- Barnama
Japan To Provide Us$1 Billion To Bangladesh In Budget Support, To Upgrade Rail Line
By Shakir Husain NEW DELHI, May 30 (Bernama) -- Japan will offer US$1 billion to Bangladesh in budgetary support and to upgrade a key railway line. The financial package was agreed during Bangladesh's interim leader Muhammad Yunus's visit to Tokyo, where he held talks on bilateral and regional issues with Japanese Prime Minister Shigeru Ishiba on Friday. bootstrap slideshow 'Of the total, Japan will provide US$418 million as a Development Policy Loan for Bangladesh's economic reforms and climate resilience. 'Tokyo will also lend US$641 million for upgradation of Joydevpur-Ishwardi into a dual-gauge double railway track and another US$4.2 million as grants for scholarships," his office said in a statement on Friday. In a joint statement, Ishiba reiterated Japan's support to the Bangladesh interim government in its "nation-building efforts, its reform initiatives, and its endeavour towards a peaceful transition". The two leaders emphasised the need to resolve the Myanmar humanitarian crisis, which has forced more than 1.2 million people of the Rohingya ethnic community to flee to Bangladesh. "Both sides shared the view that a sustainable, safe, voluntary, and dignified repatriation of the displaced persons to Myanmar is the ultimate solution to this crisis for peace and stability across the region. Both sides also recognised the importance of sincere dialogue among all relevant stakeholders to resolve the crisis," the statement stated. Yunus, who arrived in Japan on Wednesday on a four-day visit, engaged with Japanese businesses, prominent figures and organisations.
Zawya
30-04-2025
- Business
- Zawya
Eswatini: World Bank Supports Fiscal and Private Sector Reforms for Resilient Growth
The World Bank Board of Executive Directors approved a Development Policy Loan (DPL) operation to support the Kingdom of Eswatini's efforts to strengthen fiscal governance, foster private sector development, and enhance energy security and climate resilience. This is the first in a programmatic series of two operations. Eswatini faces critical constraints in achieving broad-based economic growth, efficient public resource allocation, and poverty reduction. The reforms supported under this operation are expected to contribute to job creation, poverty alleviation and better social outcomes over the medium to long term. 'The operation is aligned with key national priorities such as youth employment, digital transformation, and the transition to sustainable energy, all of which are essential drivers of inclusive growth,' said Satu Kahkonen, World Bank Division Director for Eswatini. This $100 million policy loan supports Eswatini's reform agenda as outlined in the country's National Development Plan (2023–2028) and Programme of Action 2024. The policy actions supported by the loan will assist Eswatini to mobilize private capital and accelerate energy access. The operation builds on the momentum of the previous DPF series (2021–2022), as well as extensive technical assistance and analytical work conducted by the World Bank in Eswatini. 'This operation comes at a critical time, as the Government of Eswatini implements a policy agenda inspired by the Sibaya People's Parliament, focused on economic growth, job creation, and improved service delivery,' said Honourable Neal Rijkenberg, Minister of Finance of the Kingdom of Eswatini. 'We welcome the World Bank's support as we work to uplift the livelihoods of EmaSwati and deliver on our development objectives.' The DPL supports reforms across three key pillars: (i) Strengthening fiscal and public financial management by enhancing debt transparency and management, reducing the accumulation of public expenditure arrears, and improving the handling of volatile revenues from the Southern African Customs Union (SACU); (ii) Enhancing private sector competitiveness by improving the business environment, reducing barriers to market entry, promoting digital payment systems, and increasing access to export markets for local firms; (iii) Improving energy security and climate resilience by accelerating domestic renewable energy development, promoting private sector participation in the electricity market, and enhancing the resilience of infrastructure and vulnerable households to climate-related shocks. Distributed by APO Group on behalf of The World Bank Group.
