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Applying for IMF funding is never a heart-warming undertaking. It always signals that the country is facing significant financial constraints. However, as pointed out by Kevin Lings, Chief Economist at Stanlib, the decision by the South African government to utilise the IMF’s RFI facility appears entirely appropriate for a variety of reasons. South Africa’s decision to approach the IMF for Covid-19 related funding was highlighted at the time when government announced their R500 billion Covid-19 support package on 22 April 2020. On Monday, the IMF approved South Africa’s Rapid Financing Instrument (RFI) credit facility with a value equivalent to R70.4bn. South Africa’s RFI facility is currently the largest of all countries that have received RFI funding. This finance facility needs to re-paid in 3.25 to 5.0 years, and is granted without any specific conditionality. However, the South African government was required to sign a letter of undertaking. This letter, essentially, says that South Africa will cooperate with the IMF in an effort to solve its Covid-19 funding difficulty. The general economic policies that the South African government proposes to follow (as described in the letter) are based on the “active scenario” that the Minister of Finance outlined (albeit with limited detail) in his recent Supplementary Budget. The emphasis placed by the IMF on the need for structural reform – as outlined in the Supplementary Budget – is overall a positive step, says Lings. South Africa and the IRR welcome each positive step with cautious optimism. – Nadya Swart
IRR welcomes IMF putting SACP-ANC government on notice: Pursue pro-growth policies to save SA
The IRR welcomes the unambiguous message in favour of ‘growth-enhancing structural reforms’ in South Africa in the approval by the International Monetary Fund (IMF) of $4.3bn in emergency support to address the Covid-19 pandemic.
In its statement late yesterday, the IMF made it clear what it expects of the South African government: “a pressing need to strengthen economic fundamentals and ensure debt sustainability by carrying out fiscal consolidation, improving governance and operations of SOEs, and implementing other growth-enhancing structural reforms”.
These key points echo the thrust of IRR communications through diplomatic and other channels over the past two months to alert prominent IMF donor nations to their critical role in strengthening the drive for solution-based support and efforts to overcome fundamental weaknesses in the South African economy.
Significantly, the IMF singled out South Africa’s pre-Covid-19 structural weaknesses – repeatedly highlighted by the IRR – when it noted: “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 IRR welcomes the implied repudiation of growth-inhibiting policies such as expropriation of property without compensation (EWC), a policy drive that is diametrically opposite to the implementation of growth-enhancing structural reforms the world body calls for.
Said IRR deputy head of policy research Hermann Pretorius: “This is a significant moment for us as a country – a win for South Africans who have found their voice in demanding accountability from government.
“The IRR has led the calls for linking sensible pro-growth reforms to IMF support. This is by no means the end of our efforts to ensure maximum accountability by the SACP-ANC government, but we are heartened by the IMF’s willingness to not let the principle of accountability be lost. No-one should miss the significance of the IMF’s announcement and what this means for the future.”
Pretorius added: “The SACP-ANC government should consider itself on notice: destructive policies such as EWC will not be tolerated – not by South Africans suffering under the mounting effects of a decade of economic lockdown, and not by the IMF donor nations whose support in this difficult time gives ordinary South Africans a stronger hand in demanding a free and open economy that works, not just for an elite politically connected few, but for all people who crave real economic empowerment.”
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.