South Africa entitled to around $65bn from international funding institutions

Finance Minister Tito Mboweni has outlined that South Africa is entitled to a maximum of $65 billion in funding from the International Monetary Fund (IMF), World Bank and the BRICS Bank and these will all be considered for the state’s extraordinary economic relief package. 

Consolidating the country’s macroeconomic response to the economic damage caused by the Covid-19 pandemic on businesses and individuals, Mboweni said the fiscal and monetary response came to a total of R800 billion. 

Over the past few weeks, the South African Reserve Bank has announced various measures to cut interest rates and support the financial system which amounts to around R300 billion. 

National Treasury’s R500 billion fiscal intervention was announced by President Cyril Ramaphosa this week.

Who’s funding what?

Mboweni is set to announce a readjusted budget soon detailing how much of the package will be accommodated from the current fiscal framework and how much will be raised from international multilateral institutions. 

At least R130 billion will come from budget reallocations, R200 billion has been earmarked to support businesses through a loan guarantee scheme, R40 billion is already being distributed through the Unemployment Insurance Fund to support workers while R70 billion will be rolled out in the form of tax deferrals and relief. 

The balance of the money will be raised either on the domestic market or through international funding institutions. Mboweni did not mention exactly how much Treasury would need from the IMF, World Bank or the New Development Bank also known as the BRICS Bank. 

He did, however, state that government is in talks with all these institutions and those opposed to this were making a  “mountain out of an anthill”.

“The fact of the matter is South Africa is a member of the World Bank and the IMF. We pay our subscription on a regular basis and therefore we are entitled to approach those institutions if we so need,” said Mboweni. 

The IMF has said that the country is entitled to $4.2 billion in emergency funding to respond to the Covid-19 crisis, the World Bank has facilities of between $55 billion and $60 billion available which Mboweni said Treasury would “negotiate for as much as [they] can”. At the same time, South Africa is also a member of the BRICS Bank which has set aside $1 billion in potential funding.

Mboweni added that Director-General Dondo Mgajane is weighing up all of these options. 

Mboweni emphasised that the critical thing about the IMF’s loan is that it is targeted towards dealing with the effects of the Covid-19 economic crisis and is not for budget support and would not come with policy interventions or conditionalities. 

“We need to understand, as the president said, we are in a war-like situation and all people need to go to the front to deal with this situation,” he said. 

Reprioritisation

On the R130 billion that would come from the fiscus, Mboweni explained that government was going all out to remove spending that can be postponed and that money will be redirected towards the R500 billion package. 

For instance, Mboweni said, there will not be much tourism activity taking place for some time and funding which had been set aside for the sector would be reallocated. 

A new budget bill with more detail will be tabled in parliament shortly.

“We are in this together. South Africa is resilient, and we have the ability to get through tough times together,” said Mboweni. However he added that given how little is known about the virus there’s a risk that growth will not recover immediately.

The longer growth remains weak, houses and businesses will be worse-off, this will be compounded further by global weakness, a weak currency and high borrowing costs.

“The fiscal weakness was present going into the crisis – in particular, rising debt-to-GDP levels and the rapid growth in interest costs as a share of total spending, squeezing out spending on other priorities.

“While we are keenly aware of the need for a short-run of enormous intervention, we cannot take our eye off the ball, i.e. the long-run. We must ensure that our choices do not mortgage our future,” said Mboweni.

Source: moneyweb.co.za