Finance Minister Tito Mboweni told the Sunday Times newspaper that South Africa may go to the International Monetary Fund (IMF) and World Bank for funds as the economy goes into meltdown over the lockdown and the wider domestic, and global fallout from the Covid-19 pandemic.
“This morning, in a conversation with the (central) Reserve Bank and the Treasury, I indicated that we should proceed and speak to the IMF and the World Bank about any facility that we can access for health purposes,” Mboweni was quoted as saying.
“We take no ideological position in approaching the IMF and World Bank. They are creating facilities for this environment and SA should also take advantage of those facilities in order to relieve pressure on the fiscus,” Mboweni said. He also noted that the two global lenders were “creating facilities for this environment”.
National Treasury did not immediately respond to requests for comment, but the potential approach to the IMF and World Bank signals deepening concern about the economy. While the World Bank can offer lending for health or social purposes, the IMF typically bails out economies in the throes of a balance of payments crisis – something that South Africa even with its poor economic performance, was far from just a few weeks ago in the pre-Covid-19 era.
But the IMF can offer support in a time of crisis that indirectly supports resources for healthcare, as it made clear in this statement on 26 March 2020 regarding the Kyrgyz Republic:
“The IMF Executive Board approves the first request for emergency financial assistance to help its member countries address the challenges posed by Covid-19. The approval of the request from the Kyrgyz Republic will make available US$120.9-million to the authorities to meet the urgent balance of payment needs stemming from the outbreak of the Covid-19 pandemic: Helps catalyse donor support and free resources for essential Covid-19-related health expenditure.”
And while Mboweni said: “We take no ideological position in approaching the IMF and World Bank,” such a move has for decades been anathema to the ANC. Thabo Mbeki prided himself on presiding over an economy that grew relatively briskly while keeping debt levels within manageable levels, pursuing policies that kept South Africa free from the humiliation and loss of independence that comes with an IMF package.
It remains to be seen if Treasury does go to the IMF or World Bank – it will be joining a swelling queue no doubt – and what size the facility will be if it gets the green light.
And the IMF has signaled it will be more flexible than it has been in the past. The austerity that normally comes with an IMF bailout is initially out for now.
On its funding to the Kyrgyz Republic, the IMF said: “To absorb the shock of the pandemic, the government is appropriately implementing a temporary loosening of macroeconomic and financial policies.”
The problem is that reimposing austerity in the typical IMF way after things get back to normal will be politically impossible anywhere after the hardship wrought by this pandemic. BM
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