South Africa secures $4.3bn IMF loan

South Africa was on Monday granted a $4.3bn loan from the IMF, the single biggest allocation of emergency financing from the fund yet for a pandemic-hit country.

The IMF approved the loan for President Cyril Ramaphosa’s government in order to address “the challenging health situation and severe economic impact of the Covid-19 shock” on Africa’s most industrialised economy, it said.

South Africa has reported about 450,000 of the continent’s approximately 850,000 cases to date. It has Africa’s biggest testing regime but the health system has come under severe strain from surges in the biggest cities, particularly Johannesburg.

The country is facing its worst downturn in nearly a century and a record budget deficit this year after Mr Ramaphosa ordered one of the world’s strictest lockdowns in March.

Even before the pandemic, the economy had been struggling for over a decade with low growth, high joblessness and rising government graft.

The IMF’s pandemic funding has relatively light terms compared to normal loans from the fund but is coming to South Africa at a time when state debts are at dangerous levels and the country has lost investment-grade credit ratings for its borrowing.

As South Africa takes up the IMF loan “there is a pressing need to strengthen economic fundamentals and ensure debt sustainability by carrying out fiscal consolidation” and structural reforms such as changes to state companies, Geoffrey Okamoto, the IMF’s first deputy managing director, said. “The Covid-19 crisis heightens the urgency of implementing these efforts to achieve sustainable and inclusive growth.”

Mr Ramaphosa’s ruling African National Congress has traditionally been wary of approaching the fund but has been won round by Tito Mboweni, the finance minister, who said that the loan’s terms would not affect South Africa’s sovereignty.

Mr Mboweni’s Treasury said that the IMF financing was “a low-interest loan that contributes to government’s fiscal relief package while respecting South Africa’s decisions on how best to provide relief to the economy and those worst affected by the current crisis”.

Mr Ramaphosa announced R500bn ($30bn) in fiscal relief for the economy in April, including R200bn in bank loan guarantees to beleaguered businesses.

However, the state was slow to pay out on social grants to protect the poorest, and the loan guarantees have had few takers. Mr Ramaphosa has also had to acknowledge increasing evidence of looting of state resources and contracts related to the pandemic in the ANC’s heartlands.

Mr Okamoto said that “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”.

South Africa has already tapped just over $1bn in official pandemic financing from development banks. The IMF has approved more than $14bn in pandemic loans for African countries so far.

South Africa’s full commitments to the IMF are likely to be released later, in a letter of intent to the fund.