Finance minister Tito Mboweni says that the R70 billion loan provided by the International Monetary Fund (IMF) is just part of a number of international funds which South Africa will use as part of its response to the coronavirus pandemic.
Speaking in a virtual National Assembly meeting on Wednesday (29 July), Mboweni said that the February 2020 budget showed there was a financial shortfall which had to be filled through domestic and international borrowing.
He added that the R70 billion loan from the IMF pales in comparison to the international bonds issued by Treasury which is also aimed at closing this financial gap.
“During this Covid period, we have sought to approach the IMF for $4.2 billion at an interest rate at 1.1% – very low rates.”
“We have approached the New Development Bank which has made available $1 billion to us, and the African Development Bank has made available $288 million (R5 billion).
“We think that, if needs be, the World Bank will also provide additional loans.”
Mboweni cautioned that these loans are repayable and will have to be paid when they are due. However, he said that this is similar to the maturity rates attached to bonds.
“This claim that the IMF loan is ‘the biggest devil in town’ is quite incorrect. We must understand it within the context of Covid-19 and also within the context of the borrowing requirement which we would have had to enter into anyway, either by issuing a global bond or other domestic bonds,” he said.
Not all contracts are corrupt
Mboweni also indicated that an an ‘urban legend’ has emerged around South Africa’ R500 billion coronavirus relief package, indicating that it has disappeared and been misspent.
“Nothing could be further from the truth. That is the most amazing urban legend – how could R500 billion disappear?
“We have experienced some technical difficulties in the loan guarantee scheme which the National Treasury, the central bank and (private) banks are working on to restart and give it a better boost,” he said.
Mboweni added that the reported ‘feeding frenzy’ around the coronavirus scheme was misleading. He said that not every tender or contract related to the scheme was corrupt.
“To assume that a tender that is at R125 million is a ‘gift to somebody’ is incorrect. We have been reading reports about possible acts of corruption in some of the contracts awarded with respect to Covid-19 equipment.
“To that extent, I have held discussions with the National Treasury director-general and his executive committee to see how we can further tighten the procedures in this regard.”
Mboweni said that one of the possible ways of addressing this problem is centrally purchasing the equipment between the Treasury and the Department of Health.
On Monday, the IMF approved a R70 billion (US$4.3 billion) loan for South Africa to help the country manage the immediate consequences of the fallout from Covid-19.
South Africa’s economy will likely contract by 7.2% in 2020 as a result of the impact of Covid-19, despite the massive relief package, the IMF says.
“Despite the sizeable relief package, the pandemic will drive the economy into a deep recession in 2020, with adverse implications for the fiscal deficit and debt,” it said in a country report.
Real GDP growth is projected to contract by 7.2% after incorporating the effect of the fiscal package and liquidity injections. The sharp contraction will be driven mainly by the impact of the nationwide lockdown on all economic sectors.
Investment, exports, and private consumption are set to decline, partially offset by a lower imports, the IMF said.
In an IMF staff report accompanying the approval of the loan to the country, the financial institution tacitly acknowledged the country’s issues, stressing the need for South Africa’s financial authorities to establish credibility in dealing with the problems it faces.
This includes promises to build business confidence, implement a successful growth strategy and to implement fiscal reforms.