Africa’s frontline financial lobbyists have won the first battle this week in their campaign to raise funds for countries wrestling with the coronavirus pandemic. Some of this could come from member states increasing the resources of the IMF, a move that the US has firmly resisted so far.
This is according to finance minister Tito Mboweni, who gave an update this week about how his portfolio will deal with the two-pronged crisis: the pandemic and the ailing economy.
“Without doubt, given what we know since February, COVID-19 will certainly further deepen the South African downturn woes. At this stage, our central scenario is for a deep recession in 2020, followed by a rapid upswing in economic growth,” said Mboweni.
The projection is in line with IMF and World Bank economic forecasts for the country and the rest of Africa. This week, Abebe Aemro Selassie, the director of the International Monetary Fund’s (IMF) African Department, gave an update of the regional economic outlook.
The IMF expects Sub-Saharan Africa to contract 1.6% in 2020, the lowest growth figure for the region since 1970. In its Africa Pulse report, the World Bank predicts a 5.1% contraction, which will plunge the region in recession for the first time in 25 years.
Currently, South Africa is grappling with a COVID-19 outbreak and is under lockdown to help stabilise its coronavirus curve:
- Gauteng, the country’s economic engine room, is the epicentre of the outbreak, with more than 900 confirmed cases of the coronavirus.
- The Western Cape and KwaZulu-Natal, which are important to South Africa’s tourism trade, have 675 and 539 confirmed cases respectively.
- More than 95,000 COVID-19 tests have been conducted, while the country has documented 48 coronavirus-related deaths.
Reform and revival
However, “the pre-existing fiscal position was precarious, and we must ensure that whatever we do does not harm our long-run fiscal sustainability. The fiscus’ ability to respond to crisis is weak,” says Mboweni.
The two-phase response the South African finance minister has proposed is as follows:
- One phase is focused on tax relief, relaxing strict procurement requirements and an exemption to municipalities and other related institutions to fast-track decision-making. In addition, this phase encompasses a number of measures in banking and insurance, including leniencies in missed debts and premium holiday
- The second phase hinges on urgent structural reforms that will support economic recovery post-crisis. It includes measures such as a plan to restore fiscal sustainability and stabilise debt accumulation. Furthermore, structural reforms include clarification on road tolling and consolidating public entities.
“Together with my colleagues in the economic cluster, [we] have put together a few proposals on how we can further grow the economy,” said Mboweni.
“Government, through National Treasury, is exploring all funding avenues to finance all COVID-19 related programmes and measures aimed at addressing the pandemic. The funding avenues will not be limited locally but will include exploring all global partners and international finance institutions. Funding transactions will be announced once concluded.”
South Africa versus Zimbabwe
Selassie noted that South Africa’s “big strength is … the fact that it has very deep and liquid domestic capital markets. Relative to most emerging market countries, it generates its financing need for the government largely domestically and [in] its own [currency].”
But Zimbabwe, South Africa’s northern neighbour, might have an uphill battle raising money from international institutions such as the IMF because it is in arrears with the World Bank and the African Development Bank.
“Unfortunately, [it] continues to have arrears to the World Bank and African Development Bank, which is a constraint on our abilities to lend to the country. We are having discussions on other means in which Zimbabwe can be helped by development partners, including grant support,” said the director of the IMF’s African Department.
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