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South Africa's fiscal stability questioned amid $1 billion World Bank loan

EditorRachael Rajan
Published 10/16/2023, 01:58 PM

South Africa's fiscal stability is under threat as it negotiates a $1 billion loan from the World Bank for energy sector reforms. The Democratic Alliance (DA) has voiced concerns over the country's escalating budget deficit, which is exacerbated by high interest rates, inflated wage bills, and losses from State-Owned Enterprises (SOEs). The Treasury is anticipated to drastically miss its 2023/24 budget targets due to these revenue shortfalls, indicating potential fiscal mismanagement.

Dr Dion George MP, a prominent figure within the DA, has expressed alarm over South Africa's persistent power crisis and the government's strategy to secure the World Bank loan. The move has cast doubt on Finance Minister Enoch Godongwana's commitment to public debt stabilization. The R340 billion ($23 billion) designated for debt servicing escalation, already a major expenditure in the February budget, threatens essential public services.

Adding to the fiscal concerns is the ongoing decline of Eskom, one of South Africa's largest SOEs. Despite the Treasury's plan to absorb over R254 billion ($17 billion) of Eskom's debt through a relief scheme, the company continues to underperform. Dr George argues that SOEs like Eskom are economic black holes and additional funding will only intensify prevailing inefficiencies.

The DA suggests that the key issue isn't a lack of funding for SOEs but South Africa's unsustainable fiscal posture. They advocate for privatization or public/private partnerships with SOEs to boost efficiency and innovation. The party intends to advise the World Bank against extending further loans and encourages Minister Godongwana to reconsider accumulating more unsustainable debt.

In the upcoming Alternative Medium-Term Budget Policy Statement (MTBPS), the DA plans to offer solutions aimed at igniting economic growth and steering South Africa towards financial stability. These proposals are expected to challenge the current government strategy and underscore the need for a new approach to managing the nation's finances.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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