On June 23, 2025, South Africa’s National Treasury and the World Bank signed a landmark $1.5 billion Development Policy Loan Agreement aimed at addressing critical infrastructure challenges that have long hindered the continent’s most industrialized economy. This strategic financing package is designed to support structural reforms in the energy and freight transport sectors, which are key to unlocking inclusive economic growth and job creation amid South Africa’s ongoing struggles with low growth and high unemployment.

Tackling Infrastructure Bottlenecks

South Africa has faced persistent infrastructure constraints for over a decade. Frequent power outages caused by Eskom’s operational challenges have crippled productivity, while deteriorating rail systems and congested ports have frustrated vital industries such as mining and automotive manufacturing. These bottlenecks have contributed to sluggish economic growth, with real GDP growth recorded at just 0.1% in the first quarter of 2025.

The World Bank loan aims to ease these constraints by supporting reforms that enhance the efficiency, resilience, and sustainability of the country’s infrastructure services. The financing is structured around three pillars:

  • Improving energy security: Attracting investment in electricity transmission, expanding grid access, and enhancing municipal distribution networks to reduce outages and improve reliability.

  • Enhancing freight transport efficiency: Establishing an independent economic regulator and unbundling the state logistics company Transnet to foster competitiveness and reduce logistical bottlenecks.

  • Supporting the transition to a low-carbon economy: Implementing fiscal tools and protections for communities affected by the energy transition, aligning with South Africa’s climate commitments.

Loan Terms and Fiscal Prudence

The $1.5 billion loan carries favorable terms aligned with South Africa’s financing strategy. It has a maturity of 16 years with a three-year grace period and an interest rate linked to the six-month Secured Overnight Financing Rate (SOFR) plus 1.49%. These conditions are expected to minimize increases in debt servicing costs, an important consideration given South Africa’s public debt is projected to peak at 77.4% of GDP in the current fiscal year.

Finance Minister Enoch Godongwana has emphasized the importance of this loan in supporting the government’s broader infrastructure investment plan, which allocates over R1 trillion (approximately $55.5 billion) over the next three years to transport, energy, water, and sanitation projects.

Strategic Impact and Government Commitment

This loan is not merely a funding injection but a catalyst for structural reforms intended to strengthen public institutions, crowd in private investment, and improve service delivery across priority sectors. Deputy Finance Minister David Masondo highlighted that borrowing for productive infrastructure development is essential to reviving South Africa’s economy.

The agreement also reinforces the longstanding partnership between South Africa and the World Bank, reflecting a shared commitment to sustainable development and economic transformation.

World Bank Press Release Excerpt

Pretoria, June 5, 2025 — The World Bank Board of Executive Directors today approved the Infrastructure Modernization for South Africa Development Policy Loan which will support critical structural reforms to enhance the efficiency and sustainability of South Africa’s infrastructure services, contributing to inclusive growth and job creation.

The $1.5 billion operation addresses South Africa’s twin economic challenges of low growth and high unemployment by easing infrastructure constraints in the energy and freight transport sectors, which have severely impacted businesses and households in recent years, disproportionately affecting the most vulnerable.

The Government of South Africa has committed to modernize state-owned enterprises and open the power and freight transport sectors to private sector competition—an effective means to attract new technologies and financing. The loan supports this drive through three mutually reinforcing pillars:

  • Improving energy security by attracting investment in transmission, expanding grid access, and enhancing municipal distribution;

  • Increasing freight transport efficiency by establishing an independent economic regulator and unbundling state logistics company Transnet;

  • Supporting the transition to a low-carbon economy through fiscal tools and protections for affected communities.

“This loan represents another important milestone in our government’s commitment to transforming South Africa’s infrastructure into a more efficient, competitive, and sustainable foundation for growth. Our ongoing partnership with the World Bank will assist us to move forward with greater speed on the reforms vital to transforming our infrastructure landscape,” said Honorable Enoch Godongwana, Minister of Finance, Republic of South Africa.

The loan is part of the World Bank Group’s broader support for South Africa which centers on inclusive growth by creating jobs and reducing poverty as well as inequality.

“These reforms tackle longstanding bottlenecks and have the potential to create 250,000 jobs by 2027 and about half a million jobs by the early 2030s. They are essential for attracting investment and enhancing public service delivery,” said Satu Kahkonen, World Bank Division Director for South Africa.

The financing terms of the World Bank loan are as follows:

  • Nominal value: US$1.5 billion

  • Maturity: 16 years with 3-year grace period

  • Interest rate: 6-month SOFR plus 1.49%

The National Treasury expressed its appreciation to the World Bank for its continued partnership and support in advancing South Africa’s development objectives. This agreement reinforces the strong and constructive collaboration between the World Bank and the Government of South Africa.

What percentage of GDP is loan repayments?

South Africa’s debt servicing costs—i.e., the amount spent on loan repayments including interest—are currently a significant portion of the country’s GDP and government revenue. Based on recent data and budget analyses:

  • Debt-service costs are projected to amount to roughly R385.9 billion in the 2024/25 fiscal year, which translates to about 22.1% of government revenue by 2026/27.

  • This cost equates to approximately R1.06 billion per day spent on servicing debt.

  • In terms of GDP, debt-service costs have been rising steadily and are estimated to be around 4% to 5% of South Africa’s GDP in recent years, with projections indicating a continued increase if interest rates and inflation remain elevated.

South Africa’s Foreign Loans (2020–2025) and Their Uses

1. World Bank Loans

  • 2025: $1.5 billion Development Policy Loan approved and signed in June 2025.

  • Purpose: Support structural reforms to improve energy security, enhance freight transport efficiency, and facilitate the transition to a low-carbon economy.

  • Use: Upgrading electricity transmission, expanding grid access, unbundling Transnet, and supporting climate-related fiscal tools.

  • Additional: In FY24, World Bank lending to South Africa reached approximately $1.46 billion, supporting infrastructure and economic reforms.

2. International Monetary Fund (IMF)

  • South Africa has an outstanding loan/purchase balance of about 762.8 million SDR (approximately $1 billion) as of March 20257.

  • Purpose: Support macroeconomic stability, fiscal consolidation, and structural reforms to boost growth and governance.

  • Use: Budget support and policy reforms to improve the business environment and labor market.

3. Other Multilateral and Bilateral Loans

  • South Africa has accessed loans and credit lines from development banks such as the African Development Bank (AfDB), New Development Bank, and bilateral partners including China, the UK, and the EU.

  • Purpose: Financing infrastructure projects, energy sector upgrades, and social development programs.

  • Use: Transport infrastructure, renewable energy projects, water and sanitation improvements.

. Foreign Debt Profile and Trends

  • Total gross external debt was approximately $168 billion at the end of 2024, down slightly from $176 billion in Q3 2024.

  • Foreign debt as a percentage of GDP was about 41.5% in 2023

  • The government repaid a foreign loan of about R9.1 billion (approximately $500 million) in January 2025.

  • Foreign loans are used to finance budget deficits, refinance maturing debt, and fund infrastructure investments.

Summary of Uses of Foreign Loans

  • Energy Sector: Support for Eskom’s financial stability and infrastructure upgrades, including transmission and distribution networks.

  • Infrastructure Development: Transport (rail, ports, roads), water, and sanitation projects funded partly through foreign loans and development bank financing.

  • Fiscal Support: Budget deficit financing and debt refinancing to maintain fiscal sustainability.

  • Economic Reform: Loans from IMF and World Bank linked to reforms improving governance, business environment, and labor markets.

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