South Africa has not approached the International Monetary Fund (IMF) for assistance in dealing with the economic fallout of the Covid-19 crisis.
This is according to Abebe Aemro Selassie, director of the African Department at the IMF.
“There are no discussions on financing with [the] South African government,” he said at a media briefing on the regional economic outlook on sub-Saharan Africa on Wednesday (April 15).
Selassie’s statement follows growing speculation that the government would be forced to approach the IMF for funding, as it shut down the country for five weeks in a bid to slow the spread of the deadly virus.
The lockdown puts SA’s fiscal position in further jeopardy as the deficit was projected to grow to 6.8% for the year to end-March 2012 before the crisis.
Despite talk that an IMF bailout was on the cards, Finance Minister Tito Mboweni has insisted that SA would not approach the lender if it had to abide by its usual conditions.
Selassie went on to say that Africa’s most industrialised country has never had issues in sourcing capital.
“You know, South Africa has always had pretty good international capital access. Over and above that though, the country’s, you know, big strength is, of course, the fact that it has very deep and liquid domestic capital markets.
“Relative to most emerging market countries, actually, it generates its financing need for the government largely domestically and [through] its own currencies.
“So that is really a major source of strength that South Africa has.”
Although the economic difficulty the country was going through prior to the crisis was not lost on Selassie, he still thinks it is relatively well-positioned to deal with it.
“Of course, debt levels have been going up and, you know, the access to international markets right now has been disrupted for a broad suite of countries. But I think the resilience that South Africa has should see it through a while, subject to policies, of course, being recalibrated to take into account medium-term growth and sustainability considerations as soon as this crisis is behind us.”
At around the same time Selassie was addressing the media, Mboweni and South African Reserve Bank Governor Lesetja Kganyago were taking part in virtual meetings of the IMF’s advisors, the International Monetary and Financial Committee (IMFC).
In an address to the IMFC’s plenary meeting, Mboweni said that the government has been working through several scenarios to figure out how the lockdown will impact the economy.
“At this stage, our central scenario is for a deep recession in 2020, followed by a rapid upswing in economic growth.”
Mboweni made the point that the recovery relies on understanding how the global economy would adjust.
“We are in constant conversation with the teams at multilateral bodies, domestic and local economists, and of course the South African Reserve Bank. We are also monitoring domestic and global high frequency data to ensure that we understand as well as we can the ongoing evolution of the economy.”
Three weeks into the lockdown, the government is starting to get a sense of where the country is at economically.
“The forecasts we have been receiving so far vary from the optimistic to the deeply pessimistic. On the relatively optimistic side, the Organisation of Economic Cooperation and Development (OECD) has highlighted that economic growth in South Africa will shrink by less than other emerging markets, in part because South Africa is not a net oil exporter.”
Mboweni also pointed out that these kinds of crises are not new to SA and that it has generally handled them well.
“As a small open economy we regularly experience external shocks. For this reason, we have chosen a flexible exchange rate, and monetary policy that is anchored by an inflation target.
“This approach has served us well in the past, through many crises, and it is serving us well at present.”
Every crisis is an opportunity
Even so, the scale of this particular crisis has forced the government to make difficult choices: its economic recovery plan, with a clear timeline of a year, includes the consolidation of public entities and the closure of South African Airways (SAA) and SA Express – although no formal announcements have been made in this regard as yet.
Closing the airlines is just a part of the things the government sees as a necessary response to the crisis.
Others include coming up with clear estimates of the additional healthcare costs that will be needed, reprioritising unnecessary expenditure towards healthcare, and assessing the impact of the economic slowdown on revenue projections.
Mboweni said the government would try to stabilise the debt and put in place structural reforms like passing the road accident benefit scheme and the “consolidation of public entities”.
He noted that: “Like I have alluded to in the past, every crisis is an opportunity for us to address our problems and challenges.”