The International Monetary Fund (IMF) on Monday approved nearly $4.3 billion loan for South Africa to respond to COVID-19 economic crisis.
The approval, under the Rapid Financing Instrument (RFI) to meet the urgent balance of payment (BOP) needs stemming from the outbreak of the COVID-19 pandemic, comes the same day President Cyril Ramaphosa warned in a letter to South Africans that the path to recovery amid COVID-19 pandemic will be “long and difficult.”
The IMF’s financial support to South Africa comes just five days after the board of directors of the African Development Bank approved $288 million (about R5 billion) to South Africa to also respond to COVID-19 economic devastation.
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The IMF said in a statement received by TODAY NEWS AFRICA in Washington DC that the financial assistance “will help fill the urgent BOP need originating from the fiscal pressures posed by the pandemic, limit regional spillovers, and catalyze additional financing from other international financial institutions.”
“It will complement the authorities’ strong policy response to the crisis and their planned post-COVID-19 fiscal consolidation and reforms to promote growth that benefits all South Africans. The authorities have committed to manage the IMF’s emergency financial assistance with full transparency and accountability,” the IMF added.
South Africa confirmed its first case of COVID-19 on March 5, 2020, and is currently the most affected country in Africa, and among the top five in the world in terms of confirmed cases.
With the worsening health crisis that forced the government recently to roll back some reopening, the economy in South Africa took a bigger hit.
But, even before COVID-19 economic crisis, the South African economy was already in free fall. Unemployment stood at 30 percent, state enterprises such as the South African Airways or Eskom had been run to the ground while per capita income in 2019 was almost the same as in 2010. In addition, the country’s budget deficit had continuously deteriorated and external accounts remained weak.
Late last month, the IMF forecast an economic turbulence for South Africa in 2020 with growth shrinking by 8 percent amid the novel coronavirus pandemic. The projection was more than three times worse than the April forecast when the IMF projected a contraction of 2.2 percent.
In its latest economic outlook for countries in Sub-Saharan Africa, IMF forecast that the economy of South Africa would modestly rebound in 2021 by 3.5 percent, provided the coronavirus outbreak is contained and a second wave of the deadly virus is avoided.
Just last April, the IMF was projecting the economy of South Africa would contract by 2.2 percent and shrink by just 0.5 percent in 2021 due to the novel coronavirus.
But between then and now, many things have changed. Coronavirus has continued to accelerate in South Africa, prolonging lockdowns and shutdowns and worsening the economic activity in the country.
According to Mr. Geoffrey Okamoto, First Deputy Managing Director and Chair, “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,” he added.
According to him, “the emergency financing under the RFI will help fill the urgent BOP need 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.”
Going forward, Okamoto said, “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,” he added.