South Africa was awarded a $1.5bn loan from the World Bank last week to assist
in infrastructural development. Critics suggest that obtaining such loans
subjugates the country’s sovereignty to international financial institutions. This is,
however, an unfounded accusation. There are several advantages to such
loans. Firstly, they come at a significantly decreased interest cost compared
with domestic market-related financing. Secondly, they impose oversight on
how the money is spent. Thirdly, they send a message to other lenders that the
country is a worthy recipient of foreign finance. Fourthly, as a loan of longerterm maturity, it helps to diversify the repayment programme by the
government over a lengthy period.