South Africa has asked the IMF for a loan


The economic catastrophe of the coronavirus has hit South Africa resistance Borrowing from the International Monetary Fund.

And now, some allies of President Cyril Ramaphosa and his ruling African National Congress fear that the $ 4.2 billion (ZAR 70.54 billion) loan his administration is negotiating with the Washington-based agency is the first step towards slippery submission .

“This is a forerunner because Cyril’s government lacks the resources,” said Lumkile Mondi, an economics professor at the University of Witwatersrand in Johannesburg. “This is just to temper the alliance partners in preparation for a much larger request.”

While the money from the IMF’s coronavirus relief facility is tied to few conditions, the unions’ conviction could be a dress rehearsal to overcome opposition to a more ambitious program in the years to come.

Shaped by the experiences of African countries such as Zambia in the 1980s, where a program imposed by the IMF led to unrest and poverty, the ANC decided to remain independent even after the apartheid era.

“One of the things the ANC had in its DNA is that you don’t want to go to the IMF, you are going to undermine your sovereignty,” said Matthew Parks, parliamentary coordinator of the 1.8 million congress of South African trade unions that supported the ANC since Nelson Mandela came to power in 1994.

“The President begged us. We accepted it in view of the extraordinary challenges. “

Nearly a decade of mismanagement and corruption under former President Jacob Zuma combined with the coronavirus outbreak and loss of investment grade rating in South Africa have left the economy in its worst condition in the democratic era. Infrastructure investments have stalled and debt is rising.

The National Treasury is forecasting an economic slump of up to 16.1% this year – the unemployment rate was already close to 30% and the economy in a recession before the recession hit.

South Africa, a founding member of the IMF in 1944, was not always a basket.

After Mandela inherited an economy decimated by isolation from apartheid, Mandela’s government set up a team to put in place guidelines that made the country investment grade with all three major credit rating companies – and it opened up to Investors everywhere – until the year 2000. Since then it has financed itself in the market.

“It was 1996 when I was involved, there was a big debate,” said Iraj Abedian, then a university professor of economics and now chief executive officer of Pan African Investment & Research Services Ltd.

“We made a decision that it was inappropriate to rush this and we decided to put the house in order without anyone in Washington telling you what to do.”

Dramatic hole

In 2007 and 2008, South Africa recorded its first budget surpluses since the 1994 elections; In 2008 the debt to gross domestic product ratio was only 26.6%.

Its only multilateral debt is a US $ 3.75 billion World Bank loan granted to the state-owned utility for the construction of a power plant that is still under construction.

The government currently estimates the lockdown will result in a loss of R285 billion ($ 17 billion) in tax revenue.

The National Treasury forecast in February before the outbreak that debt will hit 65.6% of GDP this fiscal year with a budget deficit of 6.8% of GDP; the IMF assumes that the shortfall could now double. According to Finance Minister Tito Mboweni, the debt ratio could also reach 80 percent.

“The budget gap is dramatic,” said Miriam Altman, commissioner for the South African Presidency’s National Planning Commission and economic advisor to government and business. “We have to find the cheapest credit.”

Despite the limited terms – transparency and commitment to good macroeconomic management – talks on the $ 4.2 billion loan are taking longer than expected, said a person familiar with the negotiations, declining to be classified as confidential become.

Still, a deal is likely to be within a month and the loan will likely be the largest to date from the Facility.

Nigeria first

“We face different challenges and circumstances are different, so we are felt This was the best approach to responding to the current situation, ”said the National Treasury of the loan application and declined to comment on whether further assistance would be sought.

In addition, the government is looking for money from the World Bank, the African Development Bank and the New Development Bank for the first time.

South Africa isn’t the only country whose resolve has been tested by the virus outbreak.

Smashed by a World Bank and IMF austerity plan from the 1980s that called for the economy to open up up to Nigeria had never borrowed competing imports from the IMF until this year.

The government of President Muhammadu Buhari has now taken out a loan of $ 3.4 billion from the fund.

Still, given the conditions that could come with broader support programs from the IMF and other multilateral lenders, South Africa would prefer to go on its own, said Enoch Godongwana, head of the ANC’s Economic Transformation Committee.

Bullet, belt

“Take a bite of the bullet, tighten your belt, but enforce your own terms,” ​​he said. “What can be difficult is that if we continue on the same path as we have for the past 10 years, the possibility of going to the IMF may arise.”

With a track record where government wages have risen 40% over the past 12 years and government corporations amassing billions in debt, an IMF program may be inevitable, many economists believe.

“Something like a stand-by arrangement or an expanded funding facility will be required,” said Peter Attard Montalto, head of capital markets research at Intellidex. “Countries either have to reform themselves or it will eventually be forced upon them.”

Read: South Africa is set to hit a major coronavirus milestone this week: Ramaphosa


Leave A Reply