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- Treasury started to increase its stock of debt from international financial institutions.
- Interest rates are far lower than the standard domestic rate.
- France and Germany have extended loans for the just energy transition.
- For more financial news, go to the News24 Business front page.
The recent loans secured from French and German development banks to fund SA's just energy transition come at interest rates far below that the National Treasury can secure in the market.
In a statement on Thursday, the Treasury said that the two €300 million (R5.3 billion) loans - from the Agence Française de Développement (AFD) and Kreditanstalt für Wiederaufbau (KfW) – would come at rates of approximately 3.6% and 3% respectively. The rates are tied to the Euribor floating interest rate plus 129 and 69 basis points, respectively.
"The estimated cost for the government to raise an equivalent loan today in the market would be around 8.9%. This estimate is based on a fair value estimation of South Africa's foreign currency bonds relative to the risk-free rate, secondary market activity, and historical issue spreads," said the Treasury.
Due to high borrowing costs, the Treasury has begun to increase the portion of its stock of debt held by international finance institutions. Early this year, it borrowed R11 billion from the World Bank at a concessional rate in its first loan transaction with the bank. Last week, the World Bank approved a R9 billion concessional loan for Eskom to fund just transition projects.
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While the ANC has previously been critical of the World Bank and many in its ranks remain suspicious of "conditionalities" that may be imposed, there has been a marked change in attitude.
"Due to South Africa's high stock of debt and the currently high-interest rate environment, replacing market lending with much cheaper concessional loans allows South Africa to reduce its cost of funding and overall debt burden. By lowering debt service costs, the government creates more fiscal space for critical social and other priorities," said the statement.
