The International Monetary Fund (IMF) has approved a request from South Africa for emergency financial support under the Rapid Financing Instrument (RFI) for an amount of $4.3 billion (R70.6 billion) to help mitigate the adverse social and economic impact of the Covid-19 pandemic.
The additional IMF funding is a low interest loan that contributes to government’s fiscal relief package while respecting South Africa’s decisions on how best to provide relief to the economy and those worst affected by the current crisis.
It will also pave the way for government to provide the necessary financial relief required to forge a new economy and mitigate further harm to the economy, the IMF said in a statement on Monday evening (27 July).
“The country has been hard hit by the pandemic, and this required government to come up with fiscal and monetary measures that would respond to the struggling economy and contain its negative effects to society,” it said.
Finance minister, Tito Mboweni, presented a Special Adjustments Budget in Parliament on 24 June 2020, as part of government’s key interventions to the Covid-19 pandemic.
Public spending priorities and budgets are being re-ordered and reprioritised towards Covid-19 related interventions and economic recovery efforts.
The relief package will:
- Support health and frontline services;
- Protect the most vulnerable;
- Drive job creation;
- Unlock economic growth through reforms;
- Stabilise public debt.
Mboweni said: “Government’s Covid-19 economic support package directs R500 billion straight at the problem. This is one of the largest economic response packages in the developing world.
“The South African Reserve Bank has reduced interest rates and made it easier for banks to lend money, and supported liquidity in the domestic bond market.
“Government spending and tax proposals, as well as the loan guarantee scheme and wage protection measures, are providing protection to workers and the poor, while assisting to stay afloat during these tough economic times.”
Last week South Africa secured a loan of about R5 billion ($304 million) from the African Development Bank to assist with fighting the coronavirus pandemic.
The loan is the second from a multilateral lender after the country received a $1 billion emergency facility from the New Development Bank in June to help offset the damage caused by the virus and finance the government’s R500 billion stimulus package.
Mboweni warned in his speech in June, that the South African economy is expected to contract by 7.2% in 2020, the largest contraction in nearly 90 years.
He also warned that gross national debt would be close to R4 trillion, or 81.8% of GDP by the end of this fiscal year.
“Without external support, these borrowings will almost entirely consume all of our annual domestic saving, leaving no scope for investment or borrowing by anyone else. For this reason, we need to access new sources of funding.
“Government intends to borrow about $7 billion from international finance institutions to support the pandemic response. We must make no mistake, these are still borrowings. They are not a source of revenue. They must be paid back,” he said.