The treasury says the International Monetary Fund’s (IMF’s) $4.3-billion (R71-billion) loan will contribute to the government’s R500-billion social and economic relief package for the economic devastation caused by the regulations to contain the spread of Covid-19.
The IMF announced on Monday that it would provide South Africa emergency support as it grapples with the negative health and economic effects of the pandemic.
The country entered the pandemic in an undesirable economic position and the latest data from the South African Reserve Bank forecasts that the economy will contract by 7.3% in 2020, compared with the 7.0% contraction forecast in May.
The government expects a revenue shortfall of R300-billion for the 2020 fiscal year while projected total budget spending, including debt service costs, will exceed R2-trillion for the first time.
Gross national debt is expected to swell to R4-trillion, or 81.8% of gross domestic product this year.
In a statement released shortly after the IMF’s announcement, the treasury said the “low interest loan” would “pave the way for the government to provide the necessary financial relief required to forge a new economy and to mitigate further harm to the economy”.
Finance Minister Tito Mboweni said: “Going forward, our fiscal measures will build on our policy strengths and limit the existing economic vulnerabilities which have been exacerbated by the Covid-19 pandemic.”
Mboweni previously said the country has requested the funds under the IMF’s Rapid Finance Instrument, which are not subject to the stringent structural reforms associated with the IMF’s credit facilities.
The government is looking to raise $7-billion from multilateral organisations and development finance institutions. The African Development Bank has approved $5-billion and the New Development Bank $1-billion. Earlier this month, President Cyril Ramaphosa said discussions were taking place with the World Bank for additional funding.
The IMF says South Africa should work towards ensuring debt sustainability and implementing structural reforms to achieve inclusive growth after the pandemic.
“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 entities] and implementing other growth-enhancing structural reforms,” Geoffrey Okamoto, the IMF’s first deputy managing director and chairperson, said in a statement.
The government is expected to announce the specific structural reforms in October’s medium-term budget policy statement. Okomoto says these reforms “will be a critical step to buttress the credibility of the reform efforts and should be followed by steadfast implementation”.
He added: “The authorities’ commitment to transparently monitor and report all use of emergency funds is crucial to ensuring Covid-19-related spending reaches the targeted objectives”.
The approval of the IMF’s emergency funding comes as the Special Investigating Unit said it is looking into 20 cases of corruption involving the government’s Covid-19 relief funds. In an address to the nation earlier this month, Ramaphosa said claims of government officials and private companies looting the state’s coffers amid the pandemic were being investigated.
“We have established a collaborative and coordinating centre to strengthen the collective efforts among law enforcement agencies so as to prevent, detect, investigate and prosecute Covid-related corruption. This centre brings together nine state institutions,” he said.