{"id":405685,"date":"2020-06-08T08:22:02","date_gmt":"2020-06-08T06:22:02","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=405685"},"modified":"2020-06-08T08:23:38","modified_gmt":"2020-06-08T06:23:38","slug":"south-africa-has-asked-for-a-loan-from-the-imf","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/government\/405685\/south-africa-has-asked-for-a-loan-from-the-imf\/","title":{"rendered":"South Africa has asked for a loan from the IMF"},"content":{"rendered":"

The economic calamity of the coronavirus broke South Africa\u2019s\u00a0resistance<\/span>\u00a0to borrowing from the International Monetary Fund.<\/p>\n

And now some allies of president Cyril Ramaphosa and his ruling African National Congress worry that the $4.2 billion (R70.54 billion) loan his government is negotiating with the Washington-based agency marks the first step toward a slippery slope of submission.<\/p>\n

“This is a precursor because Cyril\u2019s government doesn\u2019t have the resources,\u201d said Lumkile Mondi, economics lecturer at Johannesburg\u2019s University of the Witwatersrand. \u201cThis is just to soften the alliance partners in preparation for a much bigger ask.”<\/p>\n

While the money from the IMF\u2019s coronavirus relief facility comes with few strings attached, persuading the unions may be a dress rehearsal for overcoming opposition to a more demanding program in coming years.<\/p>\n

Scarred by the experiences of African countries such as Zambia in the 1980s, where a program imposed by the IMF led to unrest and poverty, the ANC resolved to remain self-reliant in the aftermath of the apartheid era.<\/p>\n

\u201cOne of the things the ANC had in its DNA, you don\u2019t want to go the IMF, you will undermine your sovereignty,\u201d said Matthew Parks, parliamentary coordinator for the 1.8 million-member Congress of South African Trade Unions, which has supported the ANC since Nelson Mandela took power in 1994.<\/p>\n

\u201cThe president pleaded with us. We accepted it given the extraordinary challenges.\u201d<\/p>\n

The near-decade of mismanagement and corruption under former president Jacob Zuma combined with the coronavirus outbreak and loss of South Africa\u2019s investment-grade rating have left the economy in its worst state in the democratic era. Infrastructure investment has stalled and debt is surging.<\/p>\n

The National Treasury has forecast an economic contraction of as much as 16.1% this year – the unemployment rate was already almost 30% and the economy in recession before the recession hit.<\/p>\n

South Africa, a founding member of the IMF in 1944, wasn\u2019t always a basket case.<\/p>\n

Having inherited an economy decimated by the isolation that apartheid brought, Mandela\u2019s government set up a team that enacted policies that made the country investment grade with all three major credit-rating firms — opening it\u00a0up to<\/span> investors everywhere – by 2000. It has raised its own financing in the market ever since.<\/p>\n

\u201cIt was back in 1996 where I was involved, there was a big debate\u201d over whether to take multilateral finance, said Iraj Abedian, a university economics professor at the time and now chief executive officer of Pan African Investment & Research Services Ltd.<\/p>\n

\u201cWe took the decision that it was inappropriate to rush into this, and decided to get the house in order without someone in Washington telling you what to do.\u201d<\/p>\n

Dramatic Hole<\/strong><\/p>\n

In 2007 and 2008, South Africa recorded its first budget surpluses since all-race elections in 1994; in 2008 its debt-to-gross domestic product ratio was just 26.6%.<\/p>\n

Its only multilateral debt is a $3.75 billion World Bank loan extended to the state-owned power utility to build a power plant, which is still under construction.<\/p>\n

The government currently expects to lose 285 billion rand ($17 billion) of tax revenue as a result of the lockdown.<\/p>\n

The National Treasury predicted in February, before the outbreak, that debt will reach 65.6% of GDP this financial year with a budget deficit of 6.8% of GDP; the IMF reckons the shortfall could now reach double that. The debt ratio could also reach 80%, according to Finance Minister Tito Mboweni.<\/p>\n

\u201cThe hole in the budget is dramatic,\u201d said Miriam Altman, a commissioner in the National Planning Commission in the South African Presidency and an economic adviser to government and companies. \u201cWe have to find the lowest-cost borrowing.\u201d<\/p>\n

Despite the limited conditions – transparency and a commitment to good macroeconomic management – the talks over the $4.2 billion loan are taking longer than expected, a person familiar with the negotiations said, declining to be identified as they are confidential.<\/p>\n

Still, a deal is likely within a month and the loan will likely be the biggest extended so far from the facility.<\/p>\n

Nigeria First<\/strong><\/p>\n

\u201cWe face different challenges, and circumstances are different, thus we\u00a0felt<\/span>\u00a0this was the best approach to respond to the current situation,\u201d the National Treasury said of the loan application, declining to comment on whether further assistance will be sought.<\/p>\n

The government is also seeking money from the World Bank, African Development Bank and New Development Bank for the first time.<\/p>\n

South Africa is not the only country to have had its resolve tested by the virus outbreak.<\/p>\n

Bruised by a 1980s austerity plan engineered by the World Bank and the IMF that demanded the economy open\u00a0up to<\/span>\u00a0competing imports, Nigeria had until this year never borrowed from the IMF.<\/p>\n

Now the administration of president Muhammadu Buhari has taken a $3.4 billion loan from the fund.<\/p>\n

Wary of the conditions that could come with broader support programs from the IMF and other multilateral lenders, South Africa wouldstill prefer moving on its own, said Enoch Godongwana, head of the ANC\u2019s Economic Transformation Committee.<\/p>\n

Bullet, Belt<\/strong><\/p>\n

\u201cBite the bullet, tighten the belt but impose your own terms,\u201d he said. \u201cWhat may be difficult is if we continue on the same trajectory that we have had over the last 10 years, that eventuality of going to the IMF may happen.\u201d<\/p>\n

With a track record that\u2019s seen the government wage bill rise 40% over the last 12 years and state companies accumulate billions of dollars of debt, an IMF program may be inevitable, many economists believe.<\/p>\n

\u201cSomething like a stand-by arrangement or an extended funding facility is going to be required,\u201d said Peter Attard Montalto, head of capital markets research at Intellidex. \u201cCountries must either reform themselves or it is eventually imposed upon them.\u201d<\/p>\n

\n

Read: South Africa will hit major coronavirus milestone this week: Ramaphosa<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

The economic calamity of the coronavirus broke South Africa\u2019s\u00a0resistance\u00a0to borrowing from the International Monetary Fund.<\/p>\n","protected":false},"author":59,"featured_media":405689,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[26,3921],"class_list":["post-405685","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-government","tag-headline","tag-international-monetary-fund"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/405685","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=405685"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/405685\/revisions"}],"predecessor-version":[{"id":405697,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/405685\/revisions\/405697"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/405689"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=405685"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=405685"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=405685"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}