A red line crossed: South Africa seeks aid from the IMF

Covid-19 pandemic wreaks havoc on the country’s economy.
Finance minister, Tito Mboweni. Image: Bloomberg

The economic calamity of the coronavirus broke South Africa’s resistance to borrowing from the International Monetary Fund.

And now some allies of President Cyril Ramaphosa and the African National Congress worry that the $4.2 billion loan his government is negotiating with the Washington-based agency marks the first step toward a slippery slope of submission.

“This is a precursor because Cyril’s government doesn’t have the resources,” said Lumkile Mondi, economics lecturer at Johannesburg’s University of the Witwatersrand. “This is just to soften the alliance partners in preparation for a much bigger ask.”

While the money from the IMF’s coronavirus relief facility comes with few strings attached, persuading the unions may be a dress rehearsal for overcoming opposition to a more demanding programme in coming years. Scarred by the experiences of African countries such as Zambia in the 1980s, where a programme imposed by the IMF led to unrest and poverty, the ANC resolved to remain self-reliant in the aftermath of the apartheid era.

“One of the things the ANC had in its DNA, you don’t want to go the IMF, you will undermine your sovereignty,” said Matthew Parks, parliamentary coordinator for the 1.8 million-member Congress of South African Trade Unions, which has supported the ANC since Nelson Mandela took power in 1994. “The president pleaded with us. We accepted it given the extraordinary challenges.”

The near-decade of mismanagement and corruption under former President Jacob Zuma combined with the coronavirus outbreak and loss of South Africa’s investment-grade rating have left the economy in its worst state in the democratic era. Infrastructure investment has stalled and debt is surging. The National Treasury has forecast an economic contraction of as much as 16.1% this year — the unemployment rate was already almost 30% and the economy was in recession before the coronavirus hit.


South Africa, a founding member of the IMF in 1944, wasn’t always a basket case.

Having inherited an economy decimated by the isolation that apartheid brought, Mandela’s government set up a team that enacted policies that made the country investment grade with all three major credit-rating firms – opening it up to investors everywhere – by 2000. It has raised its own financing in the market ever since.

“It was back in 1996 where I was involved, there was a big debate” over whether to take multilateral finance, said Iraj Abedian, a university economics professor at the time and now chief executive officer of Pan African Investment & Research Services. “We took the decision that it was inappropriate to rush into this, and decided to get the house in order without someone in Washington telling you what to do.”

Dramatic hole
In 2007 and 2008, South Africa recorded its first budget surpluses since all-race elections in 1994; in 2008 its debt-to-gross domestic product ratio was just 26.6%.

Its only multilateral debt is a $3.75 billion World Bank loan extended to the state-owned power utility to build a power plant, which is still under construction.

The government currently expects to lose R285 billion of tax revenue as a result of the lockdown. The National Treasury predicted in February, before the outbreak, that debt will reach 65.6% of GDP this financial year with a budget deficit of 6.8% of GDP; the IMF reckons the shortfall could now reach double that. The debt ratio could also reach 80%, according to Finance Minister Tito Mboweni.

“The hole in the budget is dramatic,” said Miriam Altman, a commissioner in the National Planning Commission in the South African Presidency and an economic adviser to government and companies. “We have to find the lowest-cost borrowing.”

Despite the limited conditions – transparency and a commitment to good macroeconomic management – the talks over the $4.2 billion loan are taking longer than expected, a person familiar with the negotiations said, declining to be identified as they are confidential. Still, a deal is likely within a month and the loan will probably be the biggest extended so far from the facility.

Nigeria first
“We face different challenges, and circumstances are different, thus we felt this was the best approach to respond to the current situation,” the National Treasury said of the loan application, declining to comment on whether further assistance will be sought. The government is also seeking money from the World Bank, African Development Bank and New Development Bank for the first time.

Still, senior ruling party officials will need to vet any agreements with international finance institutions, said Ace Magashule, the ANC’s secretary general, according to the Sunday Times.

South Africa is not the only country to have had its resolve tested by the virus outbreak.

Bruised by a 1980s austerity plan engineered by the World Bank and the IMF that demanded the economy open up to competing imports, Nigeria had until this year never borrowed from the IMF. Now the administration of President Muhammadu Buhari has taken a $3.4 billion loan from the fund.

Wary of the conditions that could come with broader support programmes from the IMF and other multilateral lenders, South Africa would still prefer moving on its own, said Enoch Godongwana, head of the ANC’s Economic Transformation Committee. He, and the unions, have suggested making more use of private pensions to plug the funding gap.

Bullet, belt
“Bite the bullet, tighten the belt but impose your own terms,” he said. “What may be difficult is if we continue on the same trajectory that we have had over the last 10 years, that eventuality of going to the IMF may happen.”

With a track record that’s seen the government wage bill rise 40% over the last 12 years and state companies accumulate billions of dollars of debt, an IMF programme may be inevitable, many economists believe.

“Something like a stand-by arrangement or an extended funding facility is going to be required,” said Peter Attard Montalto, head of capital markets research at Intellidex. “Countries must either reform themselves or it is eventually imposed upon them.”

© 2020 Bloomberg L.P.

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TheANC caused the economic calamity, Covid-19 just made it more patent.

So, now they have now finally come to the end of spending other peoples money….

Even worse – They have finally come to the end of spending other peoples ‘loaned money’.

Not so. What about the couple of trillion rands locked up in pension funds. Amongst other gestures they’re rubbing their hands and licking their lips.

With the ANC’s arrogance and lack of intelligence and foresight, they will probably insist the loan comes with conditions that suit them! Good luck with that!

If this loan is approved, it will be the best news for SMME’s and bad news for BEE’s

The looting will surely end and the ACE’s and Malema’s will be irate with this move as they might find it difficult to destroy white owned business

It’s ironic that they approached the IMF, who for all practical reasons is West = caucasian

Life has a strange way of leading us to where we don’t want to be, do you agree ANC?

You WILL BE OWNED and told what to do

This is all of your own making.. Incidentally, kiss SAA goodbye if the IMF is entertained

I would love to se a recon on how they have spent the R500 billion. Does not seem as though much has filtered through to those it was supposed to help.

Where was our current leader and his “team” during the “years of mismanagement” during the Zuma years. Oops I forget. They were the managers.

The response from ANC will be “what is a recon?”

In the same vein that Jacob Zuma referred to corruption as a “Western thing” in 2014, they will now state:
“we the ANC” say that a recon is a western concept”

This R500 billion is just a number that CR threw out there to keep his people quiet, it has not actually been found. If it was actually there why go to the IMF with their conditions.

The ANC have certainly not dispensed R500 billion, that is enough to cover Eskom’s debt.

R500 billion was just a number that CR threw out to his people, it does not exist.

If he had R500 billion why is Eskom so deep in debt? If he had R500 billion why go to the IMF?

The collective was at work. Just as confused as the present collective

R50 million tenders with 100% markup on masks. That has been the typical action for Covid19.

No sign of any ventilators though.

In Africa blame is always placed on something else.

IT IS THE ANC THAT DESTROYED THE ECONOMY NOT A VIRUS!

Correct. But remember the economy has been decimated LONG BEFORE the Coronavirus.
The ANC is now going to use the impact of Covid-19 as the main scapegoat for the country’s financial problems going forward(conveniently forgetting the long-term effects of corruption, mismanagement, cadre-deployment, looting, post 1994)

There is a difference…?

touché Funguy touché !

Oh look, the Marxists are begging at the Capitalists! Pesky, pesky capitalists who save, create surpluses, build businesses and believe in the rule of law. They just don’t go away do they?

Exactly.Once again the begging bowl is at the feet of the hated capitalist.

Julius, you listening….oh sorry did not see you fighting for a place in the queue.

Ja, Julie and Floyd have run out of VBS loot.

Maybe this time the White Monopoly Capitalists should say a big NO.

I hope the IMF imposes stringent conditions regarding mismanagement of the funds. Otherwise a lot will disappear into that black hole of corruption still embraced by many in the top leadership of the ANC. The Zuma/Gupta era is not yet over as repeated stories of ANC theft continue to emerge in the media.

…..the IMF have experience from past delinquent regimes in Africa and the ANC will be viewed in the same vernacular ..basically re-teaching of the “abc’s & 123’s” properly

Funny (and quite honestly baffling) thing is it’s almost like no realises that’s old Ramaphosa was also the deputy president while these “Zupta” years occurred.

So. Either he was oblivious and therefore of a truly lower intelligence/IQ bracket.

Or…..

Expect the picking of the bones of this country to continue until many many many of the people’s bones are joined alongside the pickings. And even then, they will continue.
I’ll bet my life on that. Lol.

Would not surprise me, after a few days from now, that we get reports from both the IMF and ANC-govt, stating that they both refute such claims.

Deja vu…

BLM in America has just proven and shown to the world that the Corona 19 Chinese Virus lockdowns and social distancing was all a BIG FARCE. Similar in the UK and Australia. Many citizens and business owners were taken for a ride. South Africa has just wasted 2 months worth of GDP on nothing.

And this is relevant to the topic?

This penchant for easy money is rooted at best in political naivety, at worst in greed and corruption. Probably somewhere in-between.

South Africa has always had extremely astute financial planners and managers trained in the legendary Roman-Dutch tradition. These seem to have all but dissipated under the banner of so-called BEE and swapped out for the absolute crud we have witnessed since 2008 and Jay Zee.

Thus the “best approach in the current situation” spells more “biting the bullet” for the hard graft honest citizen and continued grazing from the grossly over-populated government feed trough (for a little while).

The result will be a loss of sovereignty. Consider the absolute failure to take advantage of the super conditions we had won back by elbow grease by 2008. Realise that there is a minute chance the government here, as in any self-respecting democracy, will not resign despite this total failure, this effectively will muzzle and chain an out of control government.

Cyril and his Ace buddy’s have fallen into a perfectly laid out debt trap and are happily nuzzling up to a seemingly new trough. This will I suspect prove to be an illusionary mirage- It is the end of their autonomy and their majority will accelerate on a downhill slope from here.

Quite ironic that the World Health Organization, a sister to the World Bank and IMF, declared the current pandemic which has “brought SA to it’s knees”. And even the statistics will bear me out with less than 1000 deaths and lower impact than TB, HIV or even the common cold on our population.

A perfect coup d’état by the de facto economic hitmen of this neo-fascist era. If the ANC thought conciliatory South African whites were hardcore, they have not yet seen the reality of those who control a state that mismanages race relations so badly as the recent George Floyd event suggests.

Hopefully, the outlook of this Washington-based entity will be more open to decentralisation, opening up the economy and supporting green and 4th industrial revolution initiatives. Viva!

Caught between a rock and hard place we are. The Chinese will ask for our ports. The IMF a piece of our heart.
Hopefully the IMF conditions will cause a rethink within the ANC.

So RW Johnson was right, SA would need an IMF bailout. He also noted that SA could choose to either have a modern industrial economy or the ANC, but it couldn’t have both.

“Bite the bullet, tighten the belt but impose your own terms”

Really, like you are doing them a favour.

Good luck with the negotiations.

The loss of sovereignty argument is a red herring. What concerns the those in power, is the loss of credibility, after all nobody goes to the IMF unless the damage caused by gross incompetence and mismanagement of a country and its economy, ultimately forces your hand. The fear of being labelled as another failed African state continues to drive the mindset that we will do things our way, regardless of the outcome and cost. The farce currently playing out at SAA being a prime example. The arrogance of not wanting to correct mistakes, even when they know it is the wrong thing to do, is what has got us into the mess that we are in. Sadly this face saving approach is only likely to get worse, as bit by bit, things start to implode.

I’m not sure abut the possible IMF conditions being a red herring. It isn’t credibility, that is long gone. I suspect it is the conditions as, given their past poor behaviour in 26 years, the ANC want the freedom to syphon off IMF money into their personal pockets, and this of their chums. The IMF conditions may not allow this so a game of smoke and mirrors is underway.

What is R70 Billion going to do??? Nothing absolutely nothing.

There are so many gears at play and they grow larger and get smaller when you understand the complexity of economics and how to get yourself out of debt.

Government debt is almost 70% of GDP, this exludes municipal debt.

The solution is simple.
Go get R6 trillion loan in Rands not Dollars.
Bailout every citizen, government entity and municipality.
Setup a central loan authority which will issue out any new loan at 18+1% and charge out the bailout package to everyone at 1% interest over their maximum life span except government which will he at 99 years.

Consider this the last loan and the preventative control.

The alternatives are reduced to 3 options. The ANC has painted itself into a corner with the communist brush. Option one – IMF bailout with prerequisites that will demand a free market. Option two – raiding the pension funds without any prerequisites imposed on the communists. Option 3 – printing the money to keep on funding socialist errors and communist destruction.

I guess that they will try to go for option no. 2 first. If the pushback is too strong, or when the pension funds are depleted and the government has to honour their implicit guarantee of government pension funds, they will go on to option 3.

Either way, any attempt to go for option no.1 will be short-lived because option no.1 implies the end of cadre-deployment, BEE, the Mining Charter and a 30% cut in the public wage bill. Suicide for the ANC, in other words. Therefore, if a regime change does not save us in time, option 3 is inevitable really. Option 3 is written into the Freedom Charter. It is baked into the cake so to speak.

We should prepare ourselves for option 3. Hope for the best – option 1, but prepare for the worst- option3.

Even if South Africa gets any money from the IMF it will be stolen and utterly wasted by the ANC Commies. That’s all they know.

Now will the Collective or the Individual (aka scapegoat) be blamed

I can only imagine the racially divisive reasons that will be put forward for this new disaster (long in the making).

The guptas have a few billions from your money

This Bloomberg article lacks balance! SA’s dire debt and poverty problems come a long way – long before the virus economists and academics warned government the country was heading for an IMF intervention. Ramaphosa failed to act and put the wrong people in his cabinet with the exception of finance minister Mboweni who is outnumbered by communists who want central control

One can’t write a balanced article without any reference to the SOE debt that started long before the virus and the imploding of the tax agency due to corruption.
And 29,7% is only unemployment in the formal economy – youth unemployment tops 50%
before the virus.
There is no way goverment or the press can use the pandemic as a scapegoat for the mess SA is in.

“…….the ANC resolved to…….. ”

Yes many resolves later and nothing but a big hole to show for it.

What happened to the BRICS bank? Wasn’t this supposed to act as an alternative to the IMF/WB?

Well, the CEO of one of the prospective lenders, the African Development Bank, was suspended very recently…guess what for?
Along the lines of VBS..

I had forgotten that a decade or so ago we had a budget surplus and debt:gdp around 33%

What happened? Zuma and the Kleptomaniacs got on stage and nearly, very nearly brought the house down! Weirdly the zuptas are not even in the dock, never mind in jail.

Bring on the IMF and I hope the loan comes with training wheels and covenants and asset-sale-impositions and public sector employment cuts and nanny rules that makes the cadres wish for granny NDZ

Since the end of Zuma, the situation has not improved, It’s getting worse, worser and worserer.

End of comments.

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