South Africa is counting on accessing 95 billion rand ($5 billion) from the International Monetary Fund, World Bank and New Development Bank to help finance a 500 billion-rand economic stimulus package.
The money from the multilateral lenders is available only for COVID-19-related measures and the government would have to adhere to some broad agreements, including on what the funding may be used for and repayment terms, National Treasury Director-General Dondo Mogajane said in an interview with broadcaster eNCA on Sunday. The agreements should not compromise the country’s sovereignty, Mogajane said.
President Cyril Ramaphosa on April 21 unveiled the fiscal package to help fight the pandemic, provide aid to the poor and shore up an economy that the central bank projects will contract 6.1% this year. The package includes a 200 billion-rand loan-guarantee program, tax-relief measures and 130 billion rand that will be diverted from existing budgets.
While some senior officials in the ruling African National Congress and its alliance partners initially shot down suggestions that the government might seek help from multilateral lenders, saying the structural adjustments associated with such loans would undermine sovereignty, Ramaphosa and the Treasury have made it clear that the government will request the assistance.
“We are looking for new money that is cheap,” Mogajane said. “The IMF said itself that it’s at 1% interest.”
Debt as a percentage of gross domestic product will increase from the estimates given in February because the country will still have to go to the market and borrow more, Mogajane said. The cost of borrowing has also increased due to recent credit-rating downgrades, he said.
The government has been engaging with the World Bank and New Development Bank for the past two weeks and will have meetings with the IMF next week. It could take as long as six weeks to finalize a deal with the IMF, but, once the lender’s board has confirmed it, the money would be available within 72 hours, Mogajane said.
ANC spokesman, Pule Mabe, indicated that the ANC may have softened its line on further borrowing from the IMF that could have more conditions attached.
“A post-corona plan must include sustainable relations with those institutions, making sure that the conditions that are set out would allow us to maintain our sovereignty,” he said, according to the transcript of an interview with Johannesburg’s Sunday Times newspaper. “On our own it might be difficult,” said. “We need these relations, but we need to make sure they are structured so the sovereignty of our people is not compromised,” he added.
What Bloomberg’s economist says
“The more details emerge on the stimulus package, the more you realise the extent to which the Treasury is constrained. They are trying as much as possible to work within the existing envelope, so there’s very little new discretionary spending. This is good for debt sustainability, but not as great for stimulating growth. Without accelerated structural reform, the package will do very little to cushion the economy.”
– Boingotlo Gasealahwe, Africa economist