The International Monetary Fund (IMF) has approved SA’s first ever request for emergency aid, granting the country a $4.3bn (R70bn) loan towards mitigating the social and economic effects of the Covid-19 pandemic.
The approach to the IMF has been fraught with tension as the ANC and its alliance partners have been insistent that SA should not agree to any onerous conditions that they said would compromise its sovereignty. Such conditionality usually comes with programmes for countries that have balance of payments problems and are meant to ensure they overcome their problems and earn enough to be able to repay IMF loans.
The rapid financing instrument that SA agreed to doesn't have such structural adjustment conditions. The commitments that the government has made are in line with policies outlined in finance minister Tito Mboweni's supplementary budget in June. These include reining in the budget deficit and containing growth in debt as a percentage of GDP.
SA has also committed to implementing economic reforms that were contained in Mboweni's documents that were released in 2019 and endorsed by the cabinet. Mboweni's deputy, David Masondo, last week said the government sought to lower cost and improve competitiveness in the economy through reforms covering sectors such as telecommunications, energy and transport.
The additional IMF loan, at an interest rate of about 1%, will help the government finance its R500bn Covid-19 relief package. The interest rate is much lower than the rate SA pays to borrow in the open market. The country's 10-year bonds yield is just over 9%, and the IMF rate represents a substantial saving for a government that has projected a budget deficit of more than 15% for 2020/2021.
The Treasury said in a statement on Monday night that the loan “will also pave the way for government to provide the necessary financial relief required to forge a new economy and mitigate further harm to the economy”.
SA, which has the most Covid-19 infections in Africa, has been hard hit by the outbreak and a lockdown that was initially among the most stringent in the world. An economy that had barely grown in the past decade and was saddled with an unemployment rate close to 30% is set to shrink by just over 7%, according to projections from the Treasury and Reserve Bank.
“With severe structural constraints to growth, economic activity has weakened over the last decade despite significant government spending, resulting in high unemployment, poverty, and income inequality,” the IMF said in its statement.
It said SA's leaders had committed to managing the loan with “full transparency and accountability”.
IMF first deputy MD and chair Geoffrey Okamoto said while SA had responded swiftly to the crisis via the Treasury and the central bank, a deep recession was unfolding and this had added to pre-existing constraints.
“There is a pressing need to strengthen economic fundamentals and ensure debt sustainability by carrying out fiscal consolidation, improving the governance and operations of SOEs [state-owned enterprises], and implementing other growth-enhancing structural reforms. The Covid-19 crisis heightens the urgency of implementing these efforts to achieve sustainable and inclusive growth.”
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