R11.4 billion loan from the World Bank sparks fears of South African debt trap

Johannesburg – Fears of a debt trap loomed large last week as it became apparent the government was set to extend the R350 Covid-19 Social Relief of Distress (SRD) grant for another year.

The World Bank on Friday approved R11.4 billion low-interest development policy loan to South Africa to help the government widens its social protection net.

National Treasury director-general Dondo Mogajane said the loan would contribute towards addressing the financing gap stemming from additional spending.

“It will assist in addressing the immediate challenge of financing critical health and social safety-net programmes, while also continuing to develop our economic reform agenda to build back better,” said Mogajane.

President Cyril Ramaphosa last week led a government delegation in a meeting with a civil society organization to discuss a proposal for the extension and improvement of the SRD beyond March 2022 and possible policy pathways to the introduction of a Basic Income Grant. The SRD grant coverage has grown significantly since its introduction from 6-million to 10.3 million recipients a month.

According to BNP Paribas South Africa senior economist Jeff Schults, it was their base case view that the SRD grant would be extended for at least the 2022/2023 fiscal year, which would cost the fiscus at least R35-billion.

“Deteriorating socio-economic conditions, rising joblessness and more acute inequality in the economy suggests that a SRD extension for another year is a likely minimum requirement for the political economy right now, we believe,” said Schultz.

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