The BRICS New Development Bank (NDB) is ready to lend South Africa $1-billion (about R18-billion), to tackle the immediate Covid-19 public health crisis – with another $1-billion later this year to help restimulate the economy after the downturn, which is expected as a result of the pandemic and the lockdown.
The NDB has just lent $1-billion to China – where the pandemic originated – in the form of an Emergency Assistance Programme Loan to help it tackle Covid-19 with medical equipment and gear such as hospital beds, ventilators and protective equipment for frontline medical workers. Last week, the bank issued a successful Coronavirus Combating Bond, which raised 5-billion Chinese RMB (about $700-million), to help fund the loan to China.
Leslie Maasdorp, the South African who is NDB’s vice president and chief financial officer, told Daily Maverick that the bank was ready to provide the same size of the loan to other BRICS members, including South Africa.
He said the loan to China was the biggest the bank had ever issued (since it began lending in 2016), and was unusual as the bank normally financed infrastructure, such as power stations, roads, railways and ports. But Maasdorp said in the global Covid-19 pandemic, the bank had decided this was not the time for traditional infrastructure, but for safeguarding lives and then livelihoods. Because of the urgency of the crisis, the $1-billion loan to China would be disbursed in record time, as early as 9, or 10 April 2020.
“Since the outbreak of the Novel Coronavirus Disease – 19 (Covid-19) in December 2019, the lives of people and the economy have been heavily impacted,” said Maasdorp in a statement announcing the successful 5-billion Chinese RMB bond issue. “NDB is fully committed to supporting our member countries during this period of crisis to fight the spread of Covid-19 and stand ready to provide the necessary financing to this objective.”
He said South Africa was in discussion with the NDB and other multilateral banks such as the World Bank and the African Development Bank about whether they could help it fight the pandemic. The pandemic was at different stages in different BRICS countries and so he suggested that NDB loans might be dispersed accordingly to those who wanted it. The pandemic began in China, Brazil has already had over 200 deaths, while Russia, India and South Africa were at earlier stages.
Maasdorp said all BRICS member states were entitled to $2-billion in loans per year. South Africa had so far this year not tapped into the loan and so could receive $1-billion during the first half of the year for direct medical support in fighting Covid-19 and then, if necessary, another $1-billion later in the year to stimulate economic growth and output.
Economists note that South Africa has so far drawn only on its own reserves to fight the pandemic, though Finance Minister Tito Mboweni recently said he might ask the International Monetary Fund and World Bank for assistance if necessary.
The Covid-19 pandemic is hitting the country just as Moody’s became the last major credit rating agency to downgrade South Africa’s debt to sub-investment – or “junk” – status. This will raise the costs of borrowing. The country is already heavily in debt and might not want to incur further debt by borrowing from the NDB, lest this further dissuades the credit rating agencies from restoring its investment-grade rating.
But the country might nonetheless still need to call for financial help. Because of its AA+ rating, the NDB offers loans at up to 2% lower interest rates than South Africa would be likely to get on its own. Asked if he would take up the NDB offer of a $1-billion loan to fight the pandemic, Finance Minister Tito Mboweni told Daily Maverick: “Not yet. But may. I generally don’t like loans.”
Although the NDB may only lend to its five-member countries, Maasdorp said a loan to South Africa would also indirectly benefit the region, as South Africa’s economy was so integrated with those around it. For example, many citizens of neighbouring countries worked in South Africa and so also used its public health services. DM