WASHINGTON, July 27 (Reuters) - The International Monetary Fund said on Monday its executive board approved $4.3 billion in emergency financing for South Africa to help the country address the “severe economic impact” and health challenges of the coronavirus pandemic.
The IMF said the Rapid Financing Instrument (RFI) loan, equal to 100% of South Africa’s IMF quota, or shareholding, will help fill urgent balance of payments needs from pandemic-caused fiscal pressures.
It also will “limit regional spillovers, and catalyze additional financing from other international financial institutions,” the Fund added in a statement.
Africa’s most industrialized economy, which relies on foreign investors to fund its twin current account and budget deficits, was in recession even before COVID-19 started ravaging its economy.
Forecasts are for gross domestic product to shrink by at least 7% this year, and a budget deficit of around 15% of GDP.
South Africa plans to borrow around $7 billion from international financial institutions to cushion the economic impact of COVID-19 and help struggling businesses and households.
Of that $7 billion, the New Development Bank of the BRICS group of nations - of which South Africa is a member - has already approved a $1 billion loan, and the African Development Bank has said it will lend the government roughly 5 billion rand ($304.55 million). Talks with the World Bank are ongoing.
“Going forward, our fiscal measures will build on our policy strengths and limit the existing economic vulnerabilities which have been exacerbated by the COVID-19 pandemic,” Minister of Finance Tito Mboweni said in a statement after the IMF announcement.
The government has been at pains to stress that it does not want an IMF structural adjustment programme, reflecting deep suspicion in the governing African National Congress (ANC) party and influential trade union movement because of the possible austerity conditions of such a programme.
IMF’s First Deputy Managing Director and Chair Geoffrey Okamoto said there is a pressing need for South Africa to “strengthen economic fundamentals and ensure debt sustainability by carrying out fiscal consolidation, improving the governance and operations of state-owned enterprises and implementing other growth-enhancing structural reforms.”
South Africa has recorded more than 400,000 coronavirus cases, the most in Africa, with cases rising at one of the fastest daily rates worldwide in recent weeks. ($1 = 16.4177 rand) (Reporting by David Lawder and Nqobile Dludla Editing by Chris Reese and Aurora Ellis)