Finance minister Tito Mboweni is certain that it will be a piece of cake to get a $4.2bn loan from the International Monetary Fund (IFM), that there will be no strings attached and that the interest rate will be zero.
This is not 100% accurate but it is probably a fair enough approximation of the situation. The IMF is the global fire brigade, to steal a phrase from economist Mike Schussler, and it wants to put out the fire that the Covid-19 pandemic has started as quickly as it can. It has made its full lending capacity of $1-trillion available and has put $100bn into two emergency facilities, which countries can access fast.
Unlike its standby arrangement (SBA), which it describes as its “workhorse lending instrument since 1952”, the rapid facilities do not entail a full IMF programme and can be accessed without jumping through all the hoops of fiscal adjustment and committing to conditions that will affect future policy choices.
SA is eligible for the second of these — the rapid financing instrument (RFI) — which has an interest rate of about 1%. The rapid credit facility, which carries no interest, is for poorer countries. SA does not qualify. The amount that any country is entitled to borrow is determined by its quota, which is in turn determined from the size of the reserves it has contributed to the fund.
To put out the Covid-19 fire, countries will be able to draw 100% of their quota, which two weeks ago was doubled from 50%. In SA’s case, this translates into $4.2bn. It is repayable over three to five years.
IMF facilities are never rolled over, and if not paid back a completely new facility must be negotiated.
Considering that the Treasury, which borrows considerably in the bond market every week just to fund the government’s normal activities, has been on the receiving end of interest rates above 10%, a 1% interest rate, even if dollar-denominated is, as Mboweni says, a very good deal. This is especially so now that the rand is at a record low.
But before a country can get this cheap money in hand, a negotiation must take place. IMF facilities — even the RFI — are expressly for “balance of payments” (BOP) problems, which arise when a country does not have the foreign exchange it needs to pay for imports or to service foreign denominated debt. While Mboweni says that SA is not looking for BOP support, it is clearly back of mind to the IMF that such a crisis could emerge.
Questioned about SA’s eligibility for the facilities, an IMF spokesperson made the obvious point “that SA’s balance of payments, like most countries affected by the pandemic, is under pressure due to lower exports of goods and services, and capital outflows”. In other words, this might be a fiscal problem now, but there is the risk that it could morph into a BOP problem.
But, while the IMF wants to disburse money fast, SA’s deteriorating debt situation will not be glossed over in the negotiations.
Says the IMF on its website: “There are some requirements for support under the rapid credit facility and the rapid financing instrument including that the country’s debt is sustainable or on track to be sustainable, that it has urgent balance of payments needs, and that it is pursuing appropriate policies to address the crisis.”
Mboweni, who has every intention of bargaining hard with the IMF, could find it ready to play harder ball along with him. He will have to present a strong case, backed by a credible, rejigged budget and a funding plan both for the deficit, which has widened to about 10% of GDP. This will not be completely straightforward as even before the crisis the Treasury had not articulated a clear funding plan to plug the gap.
Some analysts, even in SA’s financial authorities, have begun to believe that a full IMF programme — or SBA in which the government accesses cheaper money in return for both the discipline and the confidence that an IMF programme would bring — would not be such a bad thing.
Even those who have castigated the IMF in the past for imposing austerity on poor countries — such as Nobel prize winning economist Joseph Stiglitz — have moved on. In an interview with the Economist in April, Stiglitz said frankly that he was “amazed and impressed” at the transformation of the IMF over the past 15 years, which has come to see inequality as a bad thing and a drag on economic growth.
The IMF itself says that it has revamped its workhorse “to be more flexible and responsive to member countries’ needs” and simplified the conditions of the SBA.
For the ANC and its allies, which have not unfairly feared and resented IMF austerity in the past, this could be the start of an entirely new era.
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