South Africa’s decision to secure international loans in dollars is financially dangerous and could become unaffordable due to currency fluctuations, according to Dick Forslund of the Alternative Information and Development Centre (AIDC).
His warning follows South Africa’s first-ever loan from the OPEC Fund for International Development — a $150-million development policy loan aimed at easing key constraints on economic growth. The funding will support government reforms in the energy and freight transport sectors.
Forslund said the government’s continued reliance on dollar-denominated borrowing exposes the country to significant exchange rate risks. With the rand currently trading at approximately 16.50 to the dollar and the OPEC loan carrying an interest rate just below 5%, he noted that even modest currency shifts could dramatically increase the effective borrowing costs in rand terms.
“If the exchange rate goes up to 17 rand for a dollar, the effective local interest rate becomes close to 9%,” Forslund explained. “If it’s 18 rand per dollar — which it was for a long period just some years ago — then the interest rate on this loan will be 15%. A further slide to 19 rand per dollar would push the effective rate above 20%.”
The $150-million OPEC facility adds to the roughly $2.5-billion South Africa has already borrowed from the World Bank in similar development policy loans. Forslund also raised concerns about the policy conditions attached to such loans, describing them as “not politically neutral.” He drew parallels with the World Bank’s Country Partnership Framework signed in 2021, which he said promotes austerity and privatisation.
On privatisation, Forslund pointed to Eskom as a key concern. “You can’t expect working-class and poor people to pay more and more for electricity, but that is exactly what is happening,” he said. He noted that 80–90% of Eskom’s borrowing comes from the state pension fund, the Government Employees Pension Fund (GEPF), which lends at market rates.
He called the government’s approach “irrational” and suggested the OPEC loan also carries political significance, signalling to the international finance community that South Africa is not pursuing progressive or left-wing economic experiments. He noted that the OPEC Fund is largely controlled by Gulf states, including the UAE and Saudi Arabia, which he described as being in coalition with the United States and Israel.
With South Africa’s foreign debt estimated at more than $170 billion and 22 cents of every rand going toward debt service costs, Forslund argued that redirecting the R2.4-trillion government employee pension fund toward concessional lending to the state could solve the debt sustainability problem “almost in one blow.”
“We should stop borrowing money in foreign currency and turn to our domestic sources,” he said. “It’s not rocket science. It has been done before.”
Forslund noted that the AIDC has advocated this position for a decade and that former treasury officials are now beginning to echo similar views. He urged trade unions, which sit on the board of the state pension fund, to demand an end to dollar-denominated borrowing.