Finance Minister on R11 billion World Bank loan

Meeting report

The Chairperson recalled that there was a request from Mr F Shivambu (EFF) to the Chairperson to request this meeting. The Committee felt that it should consider that request, and invite the Minister to respond to the issues raised in Mr Shivambu’s letter.

Mr F Shivambu (EFF) said that the letter was written to the Chairperson after the EFF learned in the media that National Treasury had taken a loan from the World Bank. What was the purpose of taking such a loan? Historically, South Africa had had loans from the World Bank that came with conditionalities. These conditionalities, in most instances, undermined the policy and economic sovereignty of the countries that took such loans. What was the rationality of SA taking loan from the World Bank, which would “inevitably” come with conditionalities? SA was having debt obligations which exceeded R250 billion annually. What would be the logic when owing R200 to R250 billion to go and borrow R11 billion to “throw into the fiscus”? That loan would inevitably come with interest. Why borrow money to pay debt? The letter also raised: Who was involved in raising the loan of R11 billion? Who were there facilitators? Were there companies or institutions involved in raising the loan? If there were commissions paid, how much in commissions were people paid? Who were the people behind such an arrangement? With that loan, what were the conditionalities? What was SA expected to do by taking that loan? What were the conditions attached to the loan from the World Bank? Where was the detailed agreement of the loan, on when it would be repaid, and what was the interest? What did the World Bank expect SA to do, in light of the loan given? The EFF thought it was a “senseless” loan.

Dr D George (DA) asked for clarity – he understood that there was a letter sent by Mr Shivambu, who had asked a number of questions. Would the format of the meeting be that the Committee would receive a presentation and ask more questions? He had some questions given that a loan taken. Members would want to know if there were conditions attached – it was likely that was the case. Members also needed to know why it was necessary to take the loan. There had been a lot of problems in managing the public finance. It was probably not necessary to take the loan had the money been better-managed. The latter was an issue for another debate. He assumed that once the presentation was done, Members could ask more questions, in addition to those raised by Mr Shivambu.

Mr Shivambu said that there was nothing wrong with what Dr George had raised. He was sure that Treasury came to the meeting knowing that it had to respond to the basis and the rationale of the World Bank’s R11 billion loan. National Treasury needed to be given an opportunity to explain to the Committee, and it would ask questions based on that explanation. The Committee could then interrogate further the rationale and what conditionalities were attached to the loan itself.

The Chairperson said that the Minister would respond to Mr Shivambu’s letter, and Members could ask further questions.

Mr Dondo Mogajane, Director-General: National Treasury, said that he was still waiting for the Minister to connect to the platform, but Treasury could start. The Treasury delegation could explain some of the technical-level facts.

Mr Shivambu had a point of order. He felt that the Committee had to express its discontent with the Minister, who was called to appear before the Committee, but then did not come to the meeting. Everyone had other obligations. Why was the Minister not there? Was he disrespecting Parliament?

The Chairperson replied that the Committee requested the Minister to respond to item two on the meeting agenda. He was told when the meeting started that the Minister was on the platform. Nobody had told him that the Minister was no longer on the platform.

Mr Allan Wicomb, Committee Secretary, said that the Minister was online, but he was unsure if the Minister was available.

The DG explained the Minister’s office had logged in because he was on his way to the office. The Minister was not physically in the office as yet. The Committee could proceed, or it could wait for the Minister. It was up to the Chairperson and Committee members to decide, but the Treasury delegation was in the meeting.

Mr Shivambu asked rhetorically with a hint of annoyance, “What kind of a Minister is this, who knows that a meeting is scheduled for nine o’clock, and just recklessly goes to the office whenever he wanted to go there?”

Ms P Abraham (ANC) said to her fellow Members that it would be proper to wait to be recognised in the meeting so that there was no “chaos”.

Dr George echoed the sentiment of Mr Shivambu. The Committee did not see the Minister after it had the Medium Term Budget Policy Statement (MTBPS) briefing either. It was very troubling, and the Committee did raise it then. It was 09:23; the meeting was scheduled for 09:00. Parliament was a serious institution and needed to be taken seriously. It sounded as if the Minister was either on the way to the meeting or in a car, but he “clearly did not prioritise” the meeting. He thought that Members had every right to feel aggrieved that the Minister was not there. He felt that the Minister was being disrespectful. The Committee had seen that after the MTBPS, and it really was unacceptable. It was the Committee’s job to hold the Executive to account. The Minister needed to explain why Members had been waiting for 24 minutes for a meeting that should have started at 09:00. It was not acceptable, especially given that a R11 billion loan had been taken. Very serious questions needed to be asked about it, and the people of the country wanted to know what was going on. It certainly did not bode well.

Mr Shivambu said that the Committee needed to take serious exception to a situation where there was a Minister who did not take his responsibilities seriously. The Minister did not respect the meeting platform, he did not respect Parliament, and he did not respect the people of South Africa. It was the Minister’s constitutional obligation to account to the Committee. The Committee was raising the loan which had been senselessly taken by government. The Minister was the one who needed to be held accountable. The Committee was not holding staff members of Treasury accountable; it did not get elected with the staff. The staff were employees of Treasury. The Committee was looking for a Minister who must explain the basis for the loan. Yet he was not there. What kind of disrespect was that? Dr George was correct in saying that even in the MTBPS, the Minister disappeared. It was something that had never happened in Parliament, where a Minister just disappeared, and could not even explain a MTBPS. The Minister had now taken a loan that he was unable to explain because he was nowhere to be found.  What kind of a Minister was that? Why could he not resign if he had difficulties with holding the responsibilities of being a Minister of Finance. The Committee had to take a serious exception as Parliament that he had been told a long time ago that he needed to come and account in the meeting. It was unacceptable.  

Mr I Morolong (ANC) initially wanted to express the same views expressed by Ms Abraham, to the extent that the Committee should not degenerate because there are those who felt discontent that the Minister was not in the meeting. Members could not just speak without being allowed to do so by the Chairperson. He did not necessarily think that the concerns raised by Members were misplaced. He suggested the Minister be located, and the expressed views be conveyed to him that he was not in a meeting that he was supposed to be a part of. Members implored the Minister to join the meeting so that the concerns and questions raised in the meeting be responded to. The Committee noted concerns that fellow Members raised about the absence of the Minister on the platform.

Mr Enoch Godongwana, Minister of Finance, connected to the platform after some initial technical difficulties.

Ms Abraham said that the Minister needed to explain why he was joining only at that point.

The Chairperson asked the Minister to brief the Committee.

The Minister apologised. He said that he was still driving to his office.

Minister’s Input
The Minister said that the World Bank loan was a normal loan. Usually, government went to the market and raised a loan. In these particular circumstances, the World Bank had provided a policy development loan to all its member countries, including SA. Given the World Bank’s terms and conditions, which were palatable to Treasury, compared to what was available in the market, Treasury went for the World Bank loan.

The Minister said that he could respond to questions. He gave a broad outline of what happened, unless he got specific questions on the detail, which he was happy to answer.

Discussion
Dr George said that the Minister gave a very scanty explanation of what the policy development loan actually was. He did not think that people knew what it meant. SA had a very big debt liability. The interest payments on those debts were starting, and had already crowded out service delivery in vital portfolios, such as heath and security, etc. With the repayment agreement for the loan, what impact would it have on service delivery going forward, given that the money needed to be paid? Was the loan actually necessary? If one looked at the amount of money that SA has already borrowed, and the amount of corruption and wastage seen year after year from government; if that had not occurred, SA would not even have to have other debt that it had already incurred. That was an additional debt that SA had incurred because government not spending wisely. What would government do to ensure that it did not need to carry on borrowing? SA could not carry on borrowing at that rate, because it would not be able to pay it back. He would also submit written questions on this matter.

Mr Shivambu asked for assurance that the Minister was present. Members gave questions as well as the background of the issue when the meeting started. Then the Minister came into the meeting and took things in a “reckless” and “lacklustre” way. It was not like these issues were raised for the first time. A letter was written to him, to say that the Committee had a meeting that would take place on 1 February at 09:00. The Minister arrived 30 minutes late, and did not listen to what Members had said. The Minister had not even read the letters written to him. The Committee had asked questions at the beginning of the meeting, and the Minister was not there. What was the rationale of the loan from the World Bank when SA had annual debt obligations of more than R200 billion? That R11 billion would go to pay the R200 billion which SA was already owing to other institutions. What was rationale behind that? What were the conditions attached to the loan that had been given by the World Bank? Were there facilitators of the loan transaction who had been given any commission in facilitating a loan from the World Bank? If such facilitators were there, how much money had they been paid? When was the process of getting a loan from the World Bank initiated, and who was involved on the SA side in the negotiations for that loan? Was the Minister directly involved, or were there staff members in Treasury involved? If staff members were there, who were they, because Members needed to know who negotiated the details of that loan.

Mr W Wessels (FF+) echoed the sentiments of the previous two speakers, and expressed disappointment. He did not think that a Minister could come to the Committee when there was a letter sent to him, when he knew what the purpose of the meeting was, and then speak in “less than five seconds”, and not explain what a policy development loan meant. What were the terms thereof, what were the repayment terms? Those were all obvious details that Members would expect the Minister to brief the Committee on as to what the loan entailed. For the last few years, the aim had been to lessen government debt, because all knew that was one of most pertinent points of concern in the fiscal framework. It was detrimental to the country’s fiscal position, debt servicing cost, etc. The MTBPS expressed the view that government debt would be gotten under control. The MTBPS also mentioned lessening government debt. The projections in the medium-term were made on getting rid of government debt and lessening the debt servicing costs. What would the implication of that R11 billion be, and was it in the MTBPS that that would increase SA’s debt? What further loans did the Minister foresee SA needing to “keep this boat adrift”? Were there any other loans in the pipeline?

Ms M Mabiletsa (ANC) assumed that there were other banks that Treasury approached. Which were those banks? Why did the Minister finally choose the World Bank?

Mr G Skosana (ANC) said that the response from the Minister was too brief. He thought that the Minister would be broad and indicate whether there were other [unclear 0:37:44.1]. All were aware that SA had serious challenges as a result of COVID-19, and related challenges that were already present. He asked if there were other options besides taking that loan. What was the plan as a country to be able to pay back the loan?

Mr Morolong asked the Minister to explain how the World Bank loan assisted in funding the budget deficit, at an effective rate that was much lower than SA borrowing in the bond market.

Minister's response
The Minister replied that when Treasury tabled the budget in Parliament, it was saying: “This is the revenue we are likely to raise. This was the expenditure we were going to incur as a nation”. There was always a difference between those two, which was called the deficit. Treasury went to the market and raised money every year for three things: The first thing was to raise money to fund the deficit between expenditure and revenue. The second component of what Treasury borrowed was debt service cost. The third component of what it borrowed were redemptions. This year, Treasury wanted to raise about R630 billion. If one looked at R11 billion in the scheme of things, it was small. It was likely to raise R630 billion. To raise money, Treasury went to “everybody” in the market, such as development finance institutions (DFIs) all over, including the New Development Bank (NDB), the African Development Bank, and the World Bank. Treasury went to the market to raise money in order to get the R630 billion.

Dr George had raised a question about the fact that SA’s debt service costs were growing, which should worry all stakeholders. Dr George correctly said that it was likely to crowd out service delivery. SA was spending more on debt service costs than on the entire security cluster combined. It was spending more on it than the health budget. That in itself presupposed that SA as a nation should be worried. The question raised the issue that debt service costs were likely to crowd out service delivery unless Treasury worked towards containing that expenditure in the long term.

On whether the loan was necessary: Treasury was going to the market to raise about R630 billion. The R11 billion amount was part of what Treasury was raising to achieve those objectives. The necessity was there. That also talked to Mr Shivambu’s question about the rationale of the loan. Treasury was going to raise R630 billion through the market for that [unclear 0:44:21.2]. Therefore, it was necessary, because Treasury had to ensure that that expenditure was catered for – some of which was related to current expenditure, some to debt service costs, and some to redemptions. It was a necessary thing that government did on an annual basis.

The Minister said that there were no conditions attached to the loan. On the World Bank website, one could download a report and see that there were no specific conditions attached to the loan.

On facilitators: Treasury did not have facilitators. It had people employed in a division named Assets and Liabilities. Those were the technical people who negotiated the loans, and who went to the market every week. The only thing such people did was to report how much they raised. Treasury did not interfere with their operations.

On why Treasury chose the World Bank: The Minister had indicated that Treasury had gotten money from the NDB, the BRICS Bank, and a whole range of other DFIs. It was not only the World Bank. On the effective rate compared to the market: The rate was 300 basis points below what Treasury estimated it would get in the market. It was cheaper for Treasury. There is a repayment holiday of three years and it would start repaying in the fourth year. The terms were very favourable. These factors were part of its debt management strategy.

In response to the Chairperson asking if the Minister had responded only to Mr Shivambu and Dr George’s questions, the Minister replied that he also responded to Mr Morolong (who asked about the effective rate) and Ms Mabiletsa (who asked why Treasury chose the World Bank for its loan).

Follow-up questions
Dr George asked more questions about the loan. His understanding (from Treasury’s note) was that the loan was granted on the basis of the social relief of distress it was going to give. He presumed that would be in the 2022/23 budget. Was that in fact so? Would the money then be applied for social relief? His understanding was that the loan was on an optional drawdown. When would Treasury draw down that loan? It would have an impact on when Treasury would issue dollar-denominated debt in the market. The crux of his question was: Was the loan going to be used for social relief of distress? Would it be in the 2022/23 year? When would Treasury draw down, and what impact would that have on debt in the market?

Mr Shivambu recalled that he asked about transactional advisors, and if they took commissions, and how much the commissions were. He also asked who such people were. What were the conditionalities attached to the loan? Treasury had said something about the relief that was needed post-COVID-19 pandemic. The Minister said that the loan was specifically for policy development – what exactly would be done? What would the money be used for? Or would it be thrown into the fiscus, and disappear thereafter in paying the debt, which already existed? What exactly would be done with the loan that had been taken “senselessly” from the World Bank?

Ms Abraham said based on what she had heard the Minister say, there were no conditionalities attached to the loan. She asked if SA had met the preconditions as expressed in the medium-term budget. She also heard the Minister say that the people responsible for facilitation of the loans made with the World Bank or elsewhere was Treasury division, Assets and Liabilities. Did Treasury have directors within those divisions on the platform, so that they could be given an opportunity to give clarity where they felt that the Minister could have “glided over”?

Minister's response
The Minister asked officials on the platform to explain what a development policy loan was about. There were also people from Assets and Liabilities on the platform, who would explain how they worked, and explain that there were no commissions. The delegation would also deal with questions such as when the loan would be drawn down, and what the implications were.

On Dr George’s question on social relief: To the Minister’s knowledge, it was policy support. The loan was broad in its approach; Treasury would “pick and choose” where it used the loan.

Treasury response
Director-General Mogajane explained Treasury’s engagements with the World Bank. SA contributed to processes there, and it was entitled to go to the World Bank to get loans. SA was part of the 109 member countries. The Minister would deal with the politics as to why in the past, SA did not go to the World Bank, and why it went there.

In the World Bank system, there were various loan products. Two relevant loan products that were relevant for SA at that time included a specific investment loan (SIL). An SIL was what Eskom got in 2010, which was $3.75 billion. Treasury negotiated that at the time. There were conditionalities that Treasury was negotiating at the time, but finally it got its way, because at the time, the World Bank wanted to influence the processes that Eskom would go about. In 2010 Treasury was able to put its foot down and get the loan, and it was fine with the conditionalities that were set at the time. The second product that SA looked at was a Development Policy Loan (DPL). DPLs are generally used to provide budget support to member countries and their programmes, such as institutional reform issues. DPLs were also aimed at improving inclusive growth in countries, and largely also aimed at poverty reduction programmes. When SA looked at these products, the World Bank saw SA as qualifying, and SA also saw itself as qualifying for a DPL. The DPL by nature was rapidly disbursed. Sometimes loans could take very long in negotiations. But in that case, it was a quick disbursement by World Bank standards, where the World Bank looked at SA’s programmes. There were some specific actions that the World Bank was looking at SA on, and that was why it got that loan. The funding that Treasury got was on a concessional basis. Additionally, DPLs like those would look at a country like SA and ask what its crisis response had been to the COVID-19 pandemic and to the challenges related to the pandemic. The World Bank saw those responses as sound, and so SA qualified. The World Bank also saw SA having bold steps that it instituted in dealing with the virus, and the implications thereof on SA’s public finances. As a result, SA then qualified in terms of criteria, where the pandemic on its own had a huge impact on SA’s fiscal situation, including the general performance of the economy. The World Bank looked at how these  funds would mitigate in ordinary people’s lives, and when Treasury engaged with it, SA qualified. As part of SA’s own programmes to deal with its own challenges, there were various reforms launched as part of its Economic Reconstruction and Recovery Plan that Treasury instituted last year, which aimed to ensure that there were actions, specifically immediate actions that would ensure that SA recovered in the short-term. These on their own were actions that the World Bank looked at, and it saw fit to give SA $750 million in the form of budget support.

The DG said that Dr Pieterse would explain what Treasury did when it looked at those dollars, such as what its dollar obligations and dollar commitments were. Every year at the time of the budget in February, in the Budget Review, Treasury would specify how much of foreign denominated loans it would get. $3 billion was approved by Parliament in February 2021 when Treasury presented the budget. With its funding strategy, it would have indicated upfront how much in dollars, euros, etc. it would get in the market. As part of Treasury’s funding plan, Dr Pieterse would also indicate where Treasury was vis a vis the $3 billion target, and when and how Treasury would use this money. Dr Pieterse would also explain when Treasury would use drawdowns and when it would convert foreign currency from a cash management point of view. It had certain dollar commitments, where it would have to repay redemptions that were coming due. From a strategy point of view, Treasury would then decide when and how it would use the dollars.

SA’s debt was sitting at an almost 80% debt to GDP ratio, which was what Treasury said in February. If one looked at an 80% debt to GDP ratio, there were issues and factors that would call on Treasury to ensure that it managed its debt in a particular way, including managing interest on payments. Treasury said to Parliament that it was spending far more on debt repayment and interest payment than on the budget of health, for instance. In managing SA’s debt, and the concessional terms it got that loan for, and how cheap the loan became, then from a cash management, debt management, interest payment scheduling viewpoint, Treasury decided that that would be best. The Minister had confirmed that there were no conditions attached to the loan. It was SA’s actions that had been recognised around its interventions in dealing with the economy, poverty. Due to that, SA was able to get a “thumbs up” from the World Bank.

The DG referred to a key point as leader of a team that went to the market every week: To ensure that SA was managing its interest payments, to a point where it paid far less than what was due. If the market was 300 or 400% cheaper, SA was then forced by its own convictions to go the cheaper route. Treasury was not going only to the World Bank. It previously went to the New Development Bank. If one looked at the National Treasury vote, it was paying $4 billion on average [unclear if dollars or rands 1:01:51.4] in the last few years to pay for subscriptions at the New Development Bank. Now Treasury’s engagement with institutions such as the World Bank, African Development Bank and the International Monetary Fund (IMF), including others who would give SA a loan on a concessional basis, it would be open to those. It would be open to those so long as the conditions were not going to impact on the sovereignty of the state. That was a principal value that Treasury took as it engaged. The World Bank knew that. No one would dictate to SA on how the macroeconomic strategy stance of the country should be. On a weekly basis, Treasury was going to the market and raising about R20 billion from various institutions and asset managers, and not only from the World Bank, or from other development banks.

Mr Mogajane said it was the first time in SA’s democracy that Treasury went to the World Bank. He could imagine that there were political reasons government waited until now to go to the World Bank. Treasury had never been to the World Bank for a loan like that. The first time was many years ago. If one looked at history, the apartheid government only went to the World Bank in the 1950s, in 1957 in particular. Around 1994 or 1995, SA got $50 million to support local government interventions. Due to the conditionalities at the time, SA repaid that loan very quickly. Treasury looked at the World Bank of today differently from the World Bank of the 1970s, where structural adjustment programmes (SAPs) were the order of the day. There were some commentators who said that the World Bank then was an extension of the imperialist regimes of the United States of America  etc. Treasury had looked at what the World Bank was currently, where SA was participating in various committees that it was a member of. There was a role that SA played to reform the World Bank and its institutions, and it continued to do that because one could not say that it was work done. There was a lot of work to do at the World Bank in the way it engaged low-income countries, and in the way that it engaged developing countries such as SA. He thought that SA had a bigger role to play on behalf of many an emerging economy out there in the world. However, for SA’s purposes, it would only use the World Bank as and when it needed it, and there would not be any conditionalities that would bind SA’s fiscus and sovereignty.

Dr Duncan Pieterse, Treasury Deputy Director-General: Asset and Liability Management, responded to questions the DG asked him to speak to. As the Minister pointed out earlier, Treasury’s gross borrowing requirement for the current financial year was R475 billion. R77 billion of the R475 billion was what Treasury intended to raise in dollar-denominated funding. That was about $5.3 billion in dollar terms. That particular loan was part of the R77.6 billion, at approximately R11 billion. If one looked at the R11 billion World Bank loan in the context of the R475 billion gross borrowing requirement, it gave one a sense of where it fit in proportional terms.

On how the loan was negotiated: There were no transaction advisors. The loan was negotiated by the team in the Asset and Liability Division. In particular, there were two teams critical for a loan of this nature. One team was the liability management team, and within that team there was a unit called debt issuance team. The debt issuance team was responsible for Treasury’s market funding, and its DFI funding. That team was the one that engaged with the World Bank directly on the terms of the loan. By terms, he meant the interest rate, the grace period, which in that instance was highly concessional. There was another team in the Asset and Liability Division (which was also critical to a loan of that nature), namely the strategy and risk management team. That team’s role was to ensure that the loan was conducted within the risk benchmarks that Treasury had set for the sovereign. One of those risk benchmarks was that SA’s foreign debt could never exceed 15% of its total debt. That was to ensure that SA’s foreign-denominated debt, or its dollar-denominated debt, did not become a systemic risk to the sovereign, as had been the case in some other countries, such as in Latin America and elsewhere. The strategy and risk management team’s role was to ensure that all risk benchmarks were met in negotiating a loan of that nature.

On what the loan would be used for: Typically, SA’s dollar-denominated funding was used for its dollar-denominated commitments. Very rarely did Treasury take dollar-denominated funding and convert it into rands, because of the costs associated with that. It did do that last year because of the pressure it was under from COVID-19, but it did not intend doing that this year. SA’s dollar-denominated funding would be used for its dollar-denominated commitments so that Treasury managed the costs prudently.

On when the loan would be drawn down: As soon as the loan agreement was signed, those funds became available for SA to use. Treasury kept those funds in its forex account with the South African Reserve Bank (SARB), and it used those funds in line with its liquidity requirements. As and when those commitments were due, Treasury disbursed the funds as required.

On the $5.3 billion that Treasury planned to raise from the NDB this year: As the DG indicated, $1.5 billion was raised from the NDB, which was also an important DFI that Treasury was working with to access concessional funding, in order to lower the cost of SA’s borrowing the $750 million loan from the World Bank. In the current financial year, Treasury also planned to go to the market for $3 billion worth of market funding. That market funding was much more expensive than the concessional funding that it received from the World Bank. The DG already spoke to the concessional nature of the loan, and how important that was in helping SA reduce its cost of funding and therefore its debt service costs, which was something Treasury was very concerned about. The loan went a long way in helping Treasury address those high debt service costs.

The DG said that if the Committee looked at pages 84 and 85 of the Budget Review 2021, it could see some explanations of international borrowing, and information around the redemptions. One could that in the Budget Review that Treasury would issue in February 2022, it would update Table 7.4 where it talked about borrowing from international financial institutions. It would include the financial institutions that it borrowed from. It would also indicate the rates, the number of years, and the grace period and the amounts. Transparency was a feature in how Treasury managed the public finances of the country. Its financing strategy was indicated in Chapter 7 of the Budget Review. There was transparency in its management, including in any other commitments that it made. That information was for everyone to see and to interact with.

Discussion
Mr Shivambu said that the Committee had listened to the explanations that came from the Ministry and the Department. There was no rationality given as to why SA took the loan from the World Bank, except that it was eligible for a loan, therefore it must take it. What kind of logic was that, to say that “because I am eligible for a loan, I must take it”? He was “eligible” for a loan from Edgars, but he did not have to take a loan from Edgars. Was there going to be a fiscal crisis if SA did not take that loan from the World Bank? Was SA going to fail to meet basic obligations. There was “no understandable logic” in SA taking a loan, because eligibility only could not be the basis of taking a loan, particularly from that particular institution; the Committee could not be misled by the DG that the World Bank was reformed and was now a progressive institution. It was not true. The World Bank served the interests of the “imperialist masters”. Its agenda was about controlling the lesser-developed parts of the world in a manner that would retain the status quo of a global economy that was dominated by the West. If Treasury was talking about a specific justification to say that it had taken the loan because there was a health crisis, or because there was an educational crisis, or there was a specific infrastructure programme, maybe the Committee would listen to Treasury. The way it had been explained was that SA was eligible, therefore it must take it.

He proposed that the Committee must say that it did not agree with Treasury’s decision to take a loan from the World Bank. If the loan agreements had not been signed yet, then Treasury must not proceed to sign those loans. It must instead engage with other lenders, and the Committee would look into how those lenders dealt with issues that were immediate. There was no need to take a loan from the World Bank. He proposed that the Committee reject Treasury’s taking a loan from the World Bank.

Mr Skosana asked if SA could confidently say that it had enough capacity to meet all of its debt obligations. He heard the DG and Dr Pieterse mention that when one looked at the interest rate, the payment holiday, and what SA was likely to raise from the market, SA would indeed be able to pay that World Bank loan. When one looked at it holistically, at all SA’s debt obligations, could it confidently say that it had enough capacity to meet all those obligations? SA must not find itself saying that it did have capacity, but found itself going to another financial institution in the near future for another loan. SA would be going to another financial institution for another loan because it was unable to meet obligations due to a chunk of revenue going to service that particular debt. Could SA confidently say that it had enough capacity to meet all of those debt obligations?

Ms Abraham said that the Committee could not quickly jump to the conclusion of rejecting the action taken by Treasury. If Members had questions of clarity for the Department, then let Members raise those. Mr Shivambu raised the point that Treasury was taking a loan simply because the loan was available. The concern that Mr Shivambu had would be a question for her that went to the Department once again, namely that it make an emphasis to say exactly what the loan was for. Before Members came to conclusions, they must go to the agreement. Members must have clarity on the agreement. The questions that Members were raising were covered in the agreement. On the question Mr Shivambu had raised, the Department needed to emphasise the reasons for taking the loan. She did not want to answer for the Department, but felt that it should emphasise and explain to the Committee why the loan was taken. Which areas necessitated that the loan be taken. If the Department was able to give that to Members, then all would be able to agree or disagree if the areas the Department covered needed SA to go for the loan. Rather than rejecting Treasury’s action, she encouraged Members to get more clarity.

Mr Morolong said it was no secret that SA required a measure of debt to finance its budget deficit, which in turn funded government’s socioeconomic programme. He was quite content with the fact that the loan from the World Bank would assist in funding that budget deficit at an effective rate. He was also content that the conditions were already entrenched in the fiscal framework and in the MTBPS. He agreed with Ms Abraham that more “meat” needed to be given to the reasons which were attributes of that loan. He thought that Treasury had given the Committee answers, but it would have to go into more depth in expounding on the necessity of that loan.

Minister's response
The Minister went back to the rationale for taking the loan. Treasury tabled the budget in February 2021. As it tabled that budget, it said that it was going to go to the market and raise about R547 billion. It transparently said to Parliament that it was not raising that R547 billion from one source. It was going to auctions, doing bonds, and going to different DFIs, etc. The rationale was there. Members may have disagreed with Treasury, and they were entitled to their own opinions.

On whether the Committee should reject Treasury’s action: The Minister appealed to even a notion that suggested that the Committee must do so. It would be “detrimental” to the work that Treasury was doing, in the Minister’s opinion. If Treasury went to the market, who would give it money, specifically part of the that R547 billion it was raising if Parliament rejected that action for some reason (such as ideological reasons)? He believed that not taking a loan would plunge SA into a fiscal crisis.

On whether SA was likely to meet its obligations: The answer was yes and no. “Yes” for now; that was what Treasury would be telling the Committee on 23 February. It would also be telling the Committee another story. That story was that if SA did not change the debt trajectory, it may not meet those obligations. Treasury’s commitment was that it must change that debt trajectory, so that SA was able to meet its obligations. That loan on its own was not a trap to those obligations.

On corruption: It was not going to be a one-day job to resolve corruption. The Minister appreciated Dr George’s point, but it was not going to be a day’s job. Treasury needed to ensure that expenditure was spent efficiently and effectively. That was the commitment that Treasury wanted to make to the Committee, and it was a commitment that it wanted to reinforce on 23 February.

Discussion
The Chairperson said that the Committee had repeatedly dealt with debt and the deficit. In the past four years, the Committee had been emphatic on debt management. He read from the 2018 Standing Committee on Finance report on the MTBPS fiscal framework. The Committee was very clear that Treasury should manage expenditure patterns, reprioritise, not exacerbate the debt-to-gross domestic product (GDP) ratio. Debt was having a detrimental effect – how much SA was spending on servicing the debt went a long way in causing more harm to poor people. That was what the Committee noted in 2018. In 2019, when dealing with the fiscal framework and revenue proposals, the Committee emphasised to Treasury that there was an urgent need to ensure sustainable finances by containing the budget deficit and stabilising the debt. The Committee had looked at the projections on the upward trajectory of the debt-to-GDP ratio, which at that time was said to reach 60.2% in 2023/24. The Committee was concerned about that. In the same year, dealing with the revised fiscal framework and revenue proposals, the Committee recommended that the Minister should report on a quarterly basis on the debt management strategy. Debt was “raised very sharply” as a concern about the revised fiscal framework and revenue proposals.

In June 2020, in order to deal with COVID-19, Parliament had a special budget tabling, which was called the special revised fiscal framework and revenue proposals. This Committee was concerned that the debt servicing costs were very high. It was likely that the costs would reach R301 billion in 2022/23. Another issue that was raised was that many central banks all over the world were reducing their interest rates. Contrary to that, SARB was not responding in terms of reducing the interest rate. The Committee had seen that SARB had increased its interest rate recently. The SARB was an independent institution, but it did not mean that it could not be criticised. When SARB came to the Committee to present its annual report, one of the issues raised was that when people were so burdened with household debt, why was SARB increasing the interest rate? That in itself was causing more of a burden to people who were servicing car loans, bonds, and a range of other loans with financial institutions. SARB was “not helpful” in the situation SA found itself in. The Committee could not keep quiet about that. The issue of a sovereign debt crisis was raised at that time, specifically that SA should not find itself falling into a sovereign debt crisis.

Debt was again discussed in the October 2020 MTBPS due to concern at the projected 93% of GDP in 2023. The projection was that in 2023, it might reach R5.54 trillion. When Treasury briefed the Committee after presenting the February 2022 Budget, it would have to give the Committee the latest projections.

The Chairperson recalled that when the Committee had discussed the 2021 fiscal framework and revenue proposals, debt service costs was raised “sharply” by Members. In the 2021 MTBPS late last year, with the revised fiscal framework and revenue proposals, Members raised concerns about the fiscal situation that was worsening in the past financial year with a debt-to-GDP ratio of 70.89% in 2021, as compared to 57.47% in 2019/20 and 51.2% in 2018/19.

By trying to recap, the Chairperson wanted to demonstrate to Members that the Committee had not been sleeping on job. It had been doing its work on that matter and on other issues. It had been playing its oversight role, and would continue to do so. The Committee acknowledged the challenges that government was facing. Be that as it may, the Committee’s challenge as public representatives was that debt servicing costs were crowding out the expenditure on basic services. That in itself ended up increasing poverty. So many people were now very poor, especially as a result of COVID-19. But even before, the economy was not doing well. Unemployment had become very high, and the Committee had seen the figures released by Statistics South Africa last week. The Chairperson remembered the unemployment rate as being above 34%.

On the debt service costs: The Minister had said that the debt-to-GDP ratio was 68.8%. On learning and culture, government was spending R403 billion; on social development, the second-largest item, it was spending R335 billion. The third largest expenditure item was debt service costs, which was standing at R270 billion. It was very high. Debt service costs had gone above health and community development. The fourth highest expenditure item was health, which stood at R248 billion, and the fifth highest expenditure item was community development. That was not in line with the National Development Programme (NDP), where SA was fast approaching the year 2030. It was now at 2022, and it was left with eight years to reach the NDP timeframe. By 2030, there were targets that government had set for itself. Government had not set a target that debt service cost would be above health and community development. If one looked at the difference between social development and the debt service cost, it was almost R60 billion. In a relatively short period of time, the debt service cost would almost be equivalent to social development, and could even surpass that. Something had to be done about that. That was why the Committee had been concerned all along. Government must ensure that it contained the budget deficit, and avoided a sovereign debt crisis.

As had been agreed in all the meetings before, the Minister would have to report on a quarterly basis to the Committee on the effectiveness of the debt management strategy. Treasury would need to come back to the Committee after 23 February, and show it how government would improve on revenue collection, deal with tax evasion and illicit financial flows. There was an outstanding report that the Committee needed to get from the Financial Sector Conduct Authority (FSCA) and others on illicit financial flows. Government would also need to show the Committee how it would improve economic growth, and create jobs (especially for young people). So many young people were without jobs. It would also need to contain expenditure without undermining the pro-poor programmes. The Committee would deal further with the issues raised after the Budget Speech on 23 February. The Committee believed that the Minister would address all the concerns raised by Members in the meeting and previously. The Chairperson had reported that the Committee had addressed this matter for the past four years, and it should be taken very seriously.  

Mr Shivambu said that there had not been any explanation on why Treasury took the loan from the World Bank, expect that it was eligible to take the loan. That was the purpose of the meeting. The Committee had not been given a satisfactory explanation why Treasury took the loan from the World Bank. How did taking a loan from the World Bank deal with the debt-to-GDP ratio, which the Committee had previously raised? How did piling up debt deal with the debt-to-GDP ratio?  There was no clear purpose of what Treasury was going to do with that World Bank resource. He did not think that the Ministry and the Department had satisfactorily dealt with that question. Parliament must not just accept everything that it had been given as answers. That was why the Committee had been treated with disrespect. That was why Minister just came to the meeting late and did not see anything wrong with that. He did not apologise to the Committee. The Minister said “contradictory things”. They were contradictory to what was contained in the Treasury statement as to the purpose of the loan. And then the Committee must just accept that, and say that there was nothing wrong? Later on, society would blame the Committee by saying that when SA got into a sovereign debt crisis, what did this Committee, who was there, do and say? There was “nothing satisfactory” about what had been said. His proposal was that the Committee must express its disagreement with the taking of a loan from the World Bank. The Committee could only advise now that if the loan agreement had not been signed, it must not be signed. The Committee would deliberate further after the Budget presentation, and then take a decision on how to move forward. The Committee would come up with different options on what else could be done other than the World Bank recommendation.

The Chairperson said he had recapped the work of the Committee, of which Mr Shivambu was a Member since before 2019, specifically in playing its oversight role. Decisions had been taken by Parliament on those Committee recommendations. The Committee had not been “sleeping on the job”. Look at all its reports on the February Budget and MTBPS since 2018. Those reports were clear on the decisions Parliament had taken.

On the purpose of the loan: The Minister had done that. He suggested that what Mr Shivambu should say was that he did not agree with the reasons given by the Minister. The Minister had issued a statement earlier, and even today, he and the officials explained why they took that loan.

The Chairperson addressed Mr Shivambu saying that the Minister apologised when he said that he was in the basement parking area, which was why he was late for the meeting. The Chairperson appealed to Mr Shivambu that with all the explanations the Committee had received, and having engaged with the report, the Committee could take the process forward after the Minister had tabled the Budget. On 24 February, the Committee would have a meeting for a further briefing on the fiscal framework. The matter of debt management as dealt with before, would also be a matter that would arise there. As to the Committee taking a decision now, other Members had expressed their opinions. He did not think that it would be proper that the Committee stand in the way of the Executive, to say that it could not do certain things. The Committee’s job was to play an oversight role, and the Executive had a particular function to perform. He encouraged Members to let the process unfold. On 24 February, or even on the same day as the Budget Speech on 23 February, the Committee had a “lockdown session” from 12:00, where it would be scrutinising the budget. It was a matter that the Committee would deal with, and then see how it would process its fiscal framework report to Parliament.

Mr Wicomb announced that the next meeting would be on 8 February with a briefing by the Minister and Treasury on the audit action plan for the Finance portfolio.

The Chairperson said that the Committee would continue to handle today's matter which was a work in progress. The Committee would also process this when it dealt with the fiscal framework on 24 February.

The meeting was adjourned.