We may need to seek more funding to better fight virus

ALREADY IN recession when the Covid-19 virus struck, South Africa is seeking finance from multilateral lenders such as the International Monetary Fund (IMF), the World Bank, African Development Bank and the BRICS’ New Development Bank (NDB).

Finance Minister Tito Mboweni was explicit this week that the government is seeking additional funding purely to better tackle its Covid-19 response.

Mboweni specifically rejected any plans to access traditional IMF loan finance, which is usually tied to various structural adjustment targets.

The IMF said yesterday it has $1 trillion (R18.7 trillion) of lending capacity available to respond to emergency funding requests. It has already received requests from more than 90 countries.

The NDB has also indicated it is ready to lend to member countries, which include South Africa, up to $1billion each, specifically to help those countries deal with the pandemic.

On the face of it, additional emergency Covid-19-related response funding appears to be available to South Africa from these agencies.

The bigger question is whether the support will be enough of a supplement to South Africa’s spending on health services, so that the government has enough fiscal headroom to get the economy going again after the lockdown.

The government’s refusal to bail out SAA with another R10bn to keep the airline afloat is a trite indicator of the health of the fiscus.

Businesses have indicated that even if the lockdown ends by April 30, as planned, it is going to take at least six months before consumer demand, which accounts for about 60% of gross domestic product (GDP), starts to normalise.

The recession is deepening fast, and negative GDP forecasts of between -5% and more have been made in recent days. Business closures and job losses are likely to remain a feature of this year. Government tax revenues will be considerably lower as business profits drop. Many government agencies will still need bailouts.

Low inflation, low fuel prices, government relief schemes, fiscal regulatory changes and even further interest rate cuts might not be enough to kickstart the economy.

We may have to consider more generalised, additional multilateral funding at a later date, whether we like it or not.