Despite South Africa’s growing debt crises, it is not necessary or feasible for the country to turn to the International Monetary Fund (IMF) for a loan.
This is according to Dawie Roodt, chief economist at the Efficient Group, who said that the IMF provides loans to countries that struggle with Balance of Payments (BoP) difficulties.
“A payment balance problem occurs when a country must repay a loan in a currency that is not its own, or where a country must pay for imports in a foreign currency of which it does not have enough off,” he said.
“The IMF could, under these circumstances, and under strict conditions, provide loans to qualifying countries.”
However, Roodt said that an IMF-loan cannot be used to pay some of government’s largest expenses – including government employees’ salaries.
“Despite the fact that the IMF won’t allow it, the IMF typically lends money in USD$ and not in a country’s domestic currency,” he said.
“IMF loans can only be used for transactions that relate to transactions where other countries are invoiced, like paying-off foreign-denominated loans and for imports.”
Only realistic option
Roodt said that South Africa’s total outstanding state debt is currently equal to approximately 58% of GDP – and this number excludes the debt of state-owned companies like Eskom.
“Bar a small miracle, it’s almost impossible for the state to escape from this spiral of debt,” he said.
“The only realistic solution is for government to dramatically reduce costs by retrenching tens of thousands of workers, or at least by freezing government employees’ salaries.”
However, Roodt said that this path will likely face significant resistance from labour unions such as Cosatu.
“We are certainly sinking ever deeper into a debt morass, but it’s mostly rand-denominated debt. For this reason, we can expect further tax increases, prescribed assets, and further pressure on the Reserve Bank to relax monetary policy.
“There is one good reason why an IMF loan can come in useful, and that is to use such a loan as an excuse to push through certain politically difficult structural changes.
“But in as far as it relates to paying back scheduled foreign loans or for imports, South Africa has more than enough foreign reserves,” he said.