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Doing the sums on the arms deal

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REUTERS

Johannesburg - Think of it like buying a car. A very expensive car.

The price was signed at R29.992 billion in 1999, but turned into R46.666bn with inflation and the fluctuations in exchange rates (the contracts were signed in dollars, euros and Swedish krone).

The state paid about R8.5bn in cash, which ran through the Department of Defence (DoD) budgets. (Think of that as a deposit on your very expensive car.)

Then the state borrowed another R38bn from foreign banks to fund the rest. (Think of that as going begging to your bank to pay for the rest of your car.)

Broadly, the R8.5bn put up by the DoD paid for the local procurement, and the R38bn borrowed covered the imported stuff – roughly.

The costs of borrowing that R38bn added nearly R13bn in interest and several million for fees, so the total paid to the banks (now and in the future) adds up to R51bn. (The total you never bother to read on your car loan statement because it’s too painful.)

The DoD’s R8.5bn plus the R38bn capital borrowed ran through the defence budget, but the borrowing costs (interest and fees) didn’t. So take the “deposit” of R8.5bn and add the money borrowed from foreign banks (R38bn), both amounts reflected in the defence budgets since 2000/01, and that’s together about R46.666bn.

The DoD paid that R46.666bn, which is why it’s in the defence budgets. (Think of that as the price of your very expensive car.)

That R46.666bn is what the National Treasury means when it talks about the cost of the arms deal.

The Treasury doesn’t include the R13bn in loan costs as this is not included in the defence budget.

The Treasury paid the borrowing costs of the foreign loans (about R13bn).

This is because interest on government debt is managed by the Treasury and is reflected in the national Budget as a first charge against the National Revenue Fund, and thus does not appear on any department’s budget. The Treasury repays the debt and pays the interest.

The Treasury regards the cost of the equipment (R46.666bn) and the cost of the finance (R13bn) as separate items.

(Think of that as your parents having taken out a bank loan for your car, allowing you to repay them just the capital while they kindly carry the bank costs.)

Put together the arms deal price (R46.666bn the DoD paid) and the debt costs (R13bn Treasury paid), and you get just under R60bn.

That R60bn is the arms deal equipment plus finance costs from 2000 to October 2020, when the last payment is made (assuming the exchange rate predictions on the upcoming loan payments are accurate).

This is what is outstanding: based on the rand values against the loan foreign currencies as at March 31, 2014, the Treasury estimates there is R12.182bn in capital still to repay plus R2.653bn in interest, a total of R14.835bn.

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