By Dick Forslund 07 Feb 2022 | Originally published by Daily Maverick
The government is about to get a $750-million (about R11-billion) loan from the World Bank. The loan is said to be necessary ‘to protect the poor and vulnerable from the adverse socioeconomic impacts of the Covid-19 pandemic, and to pave the way for a resilient sustainable recovery’.
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‘The World Bank loan was necessary, and there are no structural adjustment programmes linked to it,” Professor Bonke Dumisa concluded in an opinion piece on IOL.
However, let us take a closer look at this loan, not least to understand the strange warning issued by Finance Minister Enoch Godongwana when defending the loan in Parliament against critics from the EFF and DA.
The loan has the unusual name “Development Policy Operation” (DPO).
“This DPO is the first-ever budget support operation the WBG has undertaken in South Africa”, exclaims the loan document in bold, adding that the new loan “is anchored in the World Bank Group [WBG] Country Partnership Framework FY2022–FY2026”.
The Country Partnership Framework
What is the Country Partnership Framework (CPF)? Parliament’s Standing Committee on Finance had obviously not heard anything about this animal when they met Finance Minister Enoch Godongwana and the Treasury on 1 February.
It is marked restricted, but it is now public, maybe after being “approved by the WBG Board in July 2021”. Safe to say the long document has been absent from the economic policy debate.
Nevertheless, the South African CPF agreement is key to understanding the following statement in the new World Bank loan document:
“For the WBG [World Bank Group], this DPO represents an opportunity to shift from an essentially knowledge-based engagement, with financing coming primarily from the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), to policy-based IBRD [International Bank for Reconstruction and Development] lending to the Government to mitigate the immediate adverse socio-economic impacts of the COVID-19 pandemic and help address longstanding structural constraints.”
In other words, the World Bank previously regarded its relation to the South African government as based on impartial and objective knowledge (interesting things can be said about that). Loans are given to projects, like the scandalous loan to the giant coal power station Medupi. But this new loan is for the “operations” of the government and “policy-based”.
This is why the meaty CPF document in which the US$750-million loan is “anchored” appears to cover… well, everything.
Godongwana’s secret script
Our Finance Minister arrived late to the meeting with the Standing Committee on Finance and “waffled around” when answering questions, one eyewitness told us. The Treasury representatives could not really spell out what the $750-million will be used for. It seems that for the time being the dollars will be put in the historically large currency reserve.
On one point the Finance Minister was however very clear. Daily Maverick quotes him saying: “Should the committee reject this, even a notion of the committee to do so, [it] would be detrimental to the work we are doing… If Parliament rejects this [loan], it is going to plunge us into a fiscal crisis.” Alas, “even a notion” that the loan will not be accepted by the parliamentarians and all hell will break loose…
Here it is: rejection of this particular loan amounts to a rejection of the said “Country Partnership Framework”, agreed with the World Bank on 24 June 2021 without any public discussions. It would signal the rejection of the Treasury’s budget cuts, the privatisation plans, the public service sector “wage freeze”, the public sector headcount cut by at least 65,000 jobs (which I have written about previously), the relaxation of protective labour laws – in short a rejection of the Treasury’s “fiscal consolidation” and “structural reforms” of a special kind
Beside the humiliation of coming to World Bank Group meetings where everything had already been agreed, maybe the inner eye of the Finance Minister envisioned government lenders demanding higher interest rates, a sell-off of assets, a dip on the stock market, a run on the rand, and various other forms of financial herd behaviour.
This loan seals the CPF agreement. The contention of the Finance Minister that the World Bank loan was found “on the market” is not correct. It cannot be bought and sold like government bonds. It is a political, non-market loan. This is why the Treasury can boast about the three-year grace period for repayment, and an interest rate below market rates.
Crucially, when accepting the financially better conditions of this loan, the government is also accepting its political conditions – the economic policy set out in the CPF. On that note, the Treasury is now also working within a longer “CPF-period” of six years, instead of the usual three years. This is why Table 1 on page 55 in the loan agreement document includes economic performance forecasts up to the year 2026, including an interesting forecast for unemployment.
Judging by this unemployment forecast, the economic policy of the “Country Policy Framework” doesn’t look that promising, does it? But this is the economic policy we must all rally behind in a “social compact”.
How bad is the CPF programme that the Treasury is subscribing to? Or is it rather that the World Bank is subscribing to the current SA government economic policy? Maybe the CPF only supports what the government has decided. Passages like this one appear to indicate this: “[T]he Government’s pledge in its October 2020 MTBPS to shift to zero-based budgeting is a step in the right direction”. Of course, that is exactly the policy step condemned in a statement by a coalition of civil society organisations, the Budget Justice Coalition.
Maybe it doesn’t matter. If you are in a prison but like it there, are you then unfree? Indeed, if you like prisons, you may even be prepared to incarcerate yourself. It helps when you are accused of not caring about the outside world. After all, what can a prisoner do about that?
Why the unnecessary loan is really necessary
Key passages in the CPF programme, as well as what happened after its adoption indicate, however, that it is the World Bank that is in charge. Here is a crucial example:
Civil society was baffled by the extreme austerity plan in the 11 November 2021 Mid Term Budget. It aimed to reach a non-interest budget surplus by 2023. It was described by Michael Sachs as a 2022-2023 “fiscal shock”: real cuts in public spending by 10 percent, hitting the value of social grants, cutting jobs and the real wages in public service.
Little did anyone know at the time about something called the “Country Partnership Framework”, which is why Sachs politely wrote: “[I]n theory we might imagine a [fiscal] consolidation that is ‘growth friendly’ for the public service. But neither the Treasury nor any other component of government have suggested such a programme, and so it would probably be prudent to assume that it does not exist.”
But there exists such a programme! It has “Smart Cities” and everything… It even sets out that the government can borrow more World Bank money for PRASA and Transnet in the near future.
In a “Summary of CPF Macroeconomic Scenarios”, the CPF document describes a “base case”, a “pessimistic case” and an “optimistic case”. They are “based on World Bank Macro and Fiscal Model – MFMod CtPF document”.
Now, in the optimistic case scenario “there is rapid fiscal consolidation and comprehensive structural reform”. How rapid? It will take two years, ladies, gentlemen, MPs and comrades: “Faster consolidation with primary surpluses from 2023”, said the CPF in June 2021.
This destructive goal is exactly what the Finance Minister put into his Mid Term Budget, and what the majority in Parliament endorsed in November.
This is the real reason why it is necessary to approve the unnecessary World Bank loan.
Dick Forslund is senior economist at the Alternative Information and Development Centre, which produces the activist magazine Amandla.