SA seeks aid from the IMF
CALAMITY: R70BN START OF SLIPPERY SLOPE?
Loan will likely be the biggest extended so far from the facility.
The economic calamity of the coronavirus broke SA’s resistance to borrowing from the International Monetary Fund.
And now some allies of President Cyril Ramaphosa and his ANC worry that the $4.2 billion (R70.49 billion) loan his government is negotiating with the IMF marks the first step toward a slippery slope of submission.
“This is a precursor because Cyril’s government doesn’t have the resources,” said Lumkile Mondi, economics lecturer at the University of the Witwatersrand. “This is just to soften the alliance partners in preparation for a much bigger ask.”
While the money from the IMF’s coronavirus relief facility comes with few strings attached, persuading the unions may be a dress rehearsal for overcoming opposition to a more demanding program in coming years.
Scarred by the experiences of African countries such as Zambia in the ’80s, where a programme imposed by the IMF led to unrest and poverty, the ANC resolved to remain self-reliant in the aftermath of the apartheid era.
“One of the things the ANC had in its DNA, you don’t want to go the IMF, you will undermine your sovereignty,” said Matthew Parks, parliamentary coordinator for trade union federation Cosatu.
“The president pleaded with us. We accepted it given the extraordinary challenges.”
The near-decade of mismanagement and corruption under former president Jacob Zuma, combined with the coronavirus outbreak and loss of SA’s investment-grade rating, have left the economy in its worst state in the democratic era.
Infrastructure investment has stalled, and debt is surging. The National Treasury has forecast an economic contraction of as much as 16.1% this year – the unemployment rate was already almost 30% and the economy in recession before the recession hit.
Dramatic hole
The government currently expects to lose R285 billion of tax revenue as a result of the lockdown. The National Treasury predicted in February, before the outbreak, that debt will reach 65.6% of GDP this financial year with a budget deficit of 6.8% of GDP; the IMF reckons the shortfall could now reach double that. The debt ratio could also reach 80%, according to Finance Minister Tito Mboweni.
“The hole in the budget is dramatic,” said Miriam Altman, a commissioner in the national planning commission in the Presidency and an economic advisor to government and companies. “We have to find the lowest-cost borrowing.”
Despite the limited conditions – transparency and a commitment to good macroeconomic management – the talks over the loan are taking longer than expected, a person familiar with the negotiations said, declining to be identified as they are confidential. Still, a deal is likely within a month and the loan will likely be the biggest extended so far from the facility.
Bullet, belt
“We face different challenges, and circumstances are different, thus we felt this was the best approach to respond to the current situation,” the National Treasury said of the loan application, declining to comment on whether further assistance will be sought. The government is also seeking money from the World Bank, African Development Bank and New Development Bank for the first time.
Wary of the conditions that could come with broader support programmes from the IMF and other multilateral lenders, South Africa would still prefer moving on its own, said Enoch Godongwana, head of the ANC’s Economic Transformation Committee.
“Bite the bullet, tighten the belt but impose your own terms,” he said. “What may be difficult is if we continue on the same trajectory that we have had over the last 10 years, that eventuality of going to the IMF may happen.” – Bloomberg