Ebun Olowu
The International Monetary Fund (IMF) has approved South Africa’s request for emergency financial support to mitigate the social and economic impact of the coronavirus pandemic.
The low interest loan is worth around R70.6 billion ($4.3 billion).
This comes after the African Development Bank last week approved a R4.7 billion loan to South Africa as part of its COVID-19 response facility, while the New Development Bank approved about R16.4 billion loan as part of its COVID-19 Emergency Programme.
According to the IMF, under its rapid financing instrument due to the COVID-19 pandemic, South Africa was able to access the financing at very low interest rates relative to the higher borrowing costs the country would generally face.
This is the first time the country has sought a loan from the IMF since the dawn of democracy in 1994.
According to Bloomberg, under the special drawing rights with the IMF, the loan would be payable over three to five years at an interest rate of just over 1%.
More than 70 countries have received financial assistance from the IMF to help in efforts to cushion the impact of the COVID-19 pandemic.
In total, South Africa has secured financial assistance of more than R90 billion from international financial institutions.
Finance Minister, Tito Mboweni, said South Africa’s Reserve Bank has also played an important role in reducing interest rates by a total of 300 basis points as consumers and businesses feel the severe economic effects of the coronavirus lockdown.
He said government’s COVID 19 support package totalling R500 billion has been directed straight at the problems exposed by the coronavirus.
A statement issued by IMF’s First Deputy Managing Director and Acting Chair, Geoffrey Okamoto, read in part:
“South Africa’s economy has been severely hit by the COVID-19 crisis, reporting the highest number of cases in sub-Saharan Africa. A deep economic recession is unfolding as the decline in domestic activity and disruptions in the global supply chain resulting from the COVID-19 shock have added to a pre-existing situation of structural constraints, subdued growth, and deteriorating social outcomes.
“The authorities responded swiftly to the crisis. The June Supplementary Budget Review presented to Parliament contains a plan to reprioritize budget appropriations toward health and mitigation spending and devote additional budgetary outlays to protect the poor, the unemployed, and the most affected businesses. The South African Reserve Bank (SARB) took strong and timely action by lowering significantly the policy rate and ensuring adequate liquidity conditions in the financial system.
“The emergency financing under the RFI will help fill the urgent BOP needs that emerged as a result of the pandemic and thus contain the economic disruption and its regional spillovers. The RFI will also help catalyze other disbursements. The authorities’ commitment to transparently monitor and report all use of emergency funds is crucial to ensuring COVID-19-related spending reaches the targeted objectives.
“There is a pressing need to strengthen economic fundamentals and ensure debt sustainability by carrying out fiscal consolidation, improving the governance and operations of SOEs, and implementing other growth-enhancing structural reforms. The COVID-19 crisis heightens the urgency of implementing these efforts to achieve sustainable and inclusive growth. Specific reform commitments at the time of the October Medium-Term Budget Policy Statement will be a critical step to buttress the credibility of the reform efforts and should be followed by steadfast implementation. Efforts to preserve the central bank’s inflation mandate and proactive bank regulation and supervision, particularly for small banks, will also be important.”
