SA, which borrowed more than R80bn from international institutions in 2020, should consider accessing cheaper sources of funding as it grapples with the fiscal impact of the Covid-19 pandemic and associated lockdowns, the head of the IMF said.
"How SA can tap into more financing that is available at lower rates, this is for the SA leadership to decide," Kristalina Georgieva, MD of the international institution that lent SA $4.3bn (R65bn) in 2020, said in a media roundtable on Wednesday. This is something the country should be exploring, she said, without discussing whether the IMF would be a potential source.
SA is facing renewed fiscal pressure as Covid-19 cases surge again. With debt of around R4-trillion, SA was already bracing for a sharp revenue shortfall that has made the government’s aim to stabilise its debt as a ratio of GDP at around 95% within five years look unrealistic. That has left economists questioning the sustainability of its debt, with 10-year yields at about 9% compared with record lows near zero in developed nations.
SA received the biggest loan of any African country from the IMF’s Rapid Financing Instrument, part of the fund’s efforts to help countries deal with the economic shock from Covid-19. It was charged an interest rate of about 1.1%.
SA also got $1bn from the New Development Bank as well as R5bn from the African Development Bank. The country has been in discussion with the World Bank over a potential loan, with finance minister Tito Mboweni saying late in 2020 that they were edging closer "to a common understanding".
In the interview, Georgieva said it was important for SA to push on with structural reforms needed to improve its fiscal position and competitiveness and she praised India for maintaining its "appetite" for change.
Within the country’s fiscal constraints, SA can make decisions on how to prioritise spending, such as the level of support it wanted to give state-owned enterprises (SOEs).
"Obviously supporting those SOEs has opportunity costs; you cannot support other parts of the economy," she said. "So, you’re right to ask, what can the country do with limited fiscal space? Well, prioritise the use of that very limited fiscal space and kind of reprioritise the deployment of resources."
On top of that, she stressed that "there ought to be concerted international support" for SA and other emerging economies and it was up to the government to work out how to access financing at lower rates than it would be charged in the open market.
"But it is an option and it should be carefully considered."
Georgieva gave a relatively upbeat assessment of the global economy, saying the IMF’s forecasts due later this month will show that while 2020 was the worst year since the Great Depression, stimulus from central banks and governments meant 2021 would be "less bad".
But she was concerned that recoveries would be uneven and inequalities would worsen.
She called for international co-operation to ensure an equitable distribution of vaccines, which are seen as crucial to defeating the disease and allowing economic activity to be restored, and for the World Health Organisation’s vaccine procurement facility to be fully funded.
"We have yet to bring full funding for Covax. We must do that. And we need to look at redistributing of vaccine capacity for countries that have booked for their population multiple times than the size of their population to countries that are in need of support for vaccination."
The fund was committed to redirecting resources to poorer countries. An expansion of its Special Drawing Rights, a virtual currency that the IMF can allocate to members, was an option, she said. That previously failed to get traction due to the opposition of the US administration.
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