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.<\/p>\n
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.<\/p>\n
“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.<\/p>\n
“The IMF could, under these circumstances, and under strict conditions, provide loans to qualifying countries.”<\/p>\n
However, Roodt said that an IMF-loan cannot be used to pay some of government’s largest expenses – including government employees\u2019 salaries.<\/p>\n
“Despite the fact that the IMF won\u2019t allow it, the IMF typically lends money in USD$ and not in a country\u2019s domestic currency,” he said.<\/p>\n
“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.”<\/p>\n
Only realistic option<\/strong><\/p>\n 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.<\/p>\n “Bar a small miracle, it\u2019s almost impossible for the state to escape from this spiral of debt,” he said.<\/p>\n “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\u2019 salaries.”<\/p>\n However, Roodt said that this path will likely face significant resistance from labour unions such as Cosatu.<\/p>\n “We are certainly sinking ever deeper into a debt morass, but it\u2019s 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.<\/p>\n “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.<\/p>\n “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.<\/p>\n
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