The headlines all noted that the loan that SA secured from the International Monetary Fund (IMF) was a first for the country. Some noted that it was, at $4.3bn (about R70bn), the biggest granted to any country so far.
What’s not clear is whether this should be a source of national pride or shame. The consensus would tend to veer towards the latter, if for different reasons.
The question that stands out is how a country that entered the last crisis a decade ago with hardly any debt has found itself having to write a letter to the IMF justifying why it should be getting what amounts to financial aid to cope with the medical challenges arising from the Covid-19 outbreak.
Based on an interview that Reserve Bank governor Lesetja Kganyago gave to the Financial Mail’s Claire Bisseker, who is also a Business Day columnist, the answer seems simple enough.
“If ever there was a lesson [from the coronavirus pandemic] it’s that you fix your roof before the rain comes so that it doesn’t leak when it does,” he said back in early April, before going on to point out that SA faced the 2008 financial crisis with low government debt, a fiscal surplus, inflation safely within the target range and banks looking healthy and well capitalised.
With the exception of the last two, those strengths had been well and truly squandered during the so-called lost decade. When Covid-19 hit, SA was well on its way to a third consecutive quarter of economic contraction.
The irony is that this was possibly one of the factors behind the banks hitting the Covid-19 storm in a resilient state — they were already braced for a miserable time and so had been fixing their roofs in preparation of a period of little or no growth in loans, and higher default rates.
Then there is a viewpoint that says the loan is unnecessary and that SA could easily fix the roof, by doing exactly what it has been doing over the past decade. It does come with a fair dose of conspiracy theories about the IMF luring countries to take its loans so that it can exert concessions to the benefit of itself and other forces with less than honourable intentions.
And there’s the old debate about the fund and its conditionality, which has been in the past blamed for bringing economies to the brink with textbook solutions that imposed policies that were inappropriate for the recipient countries.
A counterargument to that has been that no country has ever run to the IMF because it had done a stellar job running its finances, irrespective of how unfriendly the external conditions are.
The letter of intent cosigned by Kganyago and finance minister Tito Mboweni seems to be a recognition of that. It’s hard to describe any of the reforms they committed themselves to as being imposed, since they are identical to what they’ve been calling for over the past couple of years. Most of them could have been picked directly from the “Tito paper” published by the Treasury in 2019.
Will it be enough to avert a crisis and ensure the country doesn’t find itself having to go to the IMF again in a couple of years, and this time for a loan that will see it having to sign up to something more akin to the structural adjustment programmes? That’s as much a political question as it is an economic one. On both fronts, it’s hard to be optimistic.
The headlines are dominated by tales of corruption and political infighting within the ANC. While business is encouraged by an emerging consensus from Kganyago, Mboweni, President Cyril Ramaphosa and the ruling party’s policy engine led by Enoch Godongwana, there’s scepticism that there’ll be the political will.
Not only will the policies be unpopular among some sectors, one of the criticisms has been that they will take too long to deliver tangible results. If anything, they will deliver some pain if there really is some progress — for example in reining in the public sector wage bill. The political environment doesn’t seem to lend itself to unpopular but necessary policy choices.
And on the economic front, the degree of uncertainty is unlikely to lift any time soon. The confusion can be seen in the financial markets, where stocks are indicating a booming economy and bonds the opposite.
Looking at the US as a proxy, bond markets are showing 10-year yields with a negative yield, a sign of continued stress and stimulus for an economy that posted its biggest contraction since World War 2 during the second quarter. On the other hand, stocks are heading for new records, which would normally be seen as pointing to a healthy economy.
But the latter may just be a reflection of the drawing power of the big technology stocks that have benefited from the pandemic. The unfriendly global outlook, together with some spectacular own goals, such as closing up tourism and imposing bans on tobacco and alcohol sales, mean SA’s economic performance is likely to be much worse than that pencilled in by the Treasury and Reserve Bank.
And to think that the R70bn loan from the IMF isn’t even 10% of the country’s estimated budget deficit for 2020/2021, it’s looking more than a little scary.
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