South Africa’s finances haven’t deteriorated to such an extent that the nation needs to tap support from the International Monetary Fund, and the government can avoid getting to that point, Reserve Bank Governor Lesetja Kganyago said.
Reports in the media and by analysts have speculated South Africa may be forced to ask the IMF for help. The economy contracted in the first quarter, unemployment surged to the highest in more than a decade and the government was forced to bail out its struggling power utility, adding to the state’s debt burden and widening the fiscal deficit.
The nation’s biggest business lobby warned in a letter to members this month that the government will need to seek a bailout from the IMF unless it halts the decline.
“We are not there yet,” he said after listing the conditions that would prompt an IMF package when asked by reporters at a lunch in Johannesburg. “These things are in our control, we have got to be able to take those decisions and make those trade-offs, then we wouldn’t have to take the bitter medicine.”
Those factors included a budget deficit that was out of control, and a state unable to contain spending with few options to raise revenue, he said.
The rand slid as much as 1.7% against the dollar on Wednesday in Johannesburg, weakening through 15 for the first time in two months. The currency was 0.6% stronger at 14.98 per dollar by 7:21 am in Johannesburg on Thursday.
Finance minister Tito Mboweni last month announced that the government will give Eskom, the state electricity company that posted a record loss in the year through March, an extra R59 billion bailout over two years. It would fund that through more borrowing.
Fitch Ratings cut the outlook on its assessment of South Africa’s debt to negative after Mboweni’s speech and said the bailout would widen the fiscal shortfall to 6.3% of gross domestic product this year, compared with the Treasury’s initial projections of 4.5%.
“We don’t have to get there,” Kganyago said. “These problems are within our grasp, we know exactly what must we done.”
© 2019 Bloomberg L.P.