The COVID-19 outbreak is leading to a sharp economic contraction and significant financing needs in South Africa; The IMF approved US$4.3 billion in emergency financial assistance under the Rapid Financing Instrument to support the authorities’ efforts in addressing the challenging health situation and severe economic impact of the COVID-19 shock; Once the pandemic is behind, there is a pressing need to ensure debt sustainability and implement structural reforms to support the recovery and achieve sustainable and inclusive growth.
The Executive Board of the International Monetary Fund (IMF) today approved South Africa’s request for emergency financial assistance of SDR 3,051.2 million (US$ 4,286.5 million or 100 per cent of quota) under the Rapid Financing Instrument (RFI) to meet the urgent balance of payment (BOP) needs stemming from the outbreak of the COVID-19 pandemic.
The pandemic is evolving in South Africa at a challenging time. With severe structural constraints to growth, economic activity has weakened over the last decade despite significant government spending, resulting in high unemployment, poverty, and income inequality. Like in other emerging economies, financial market volatility has increased during the pandemic, but the financial system is showing resilience.
The RFI will help fill the urgent BOP needs originating from the fiscal pressures posed by the pandemic, limit regional spillovers, and catalyze additional financing from other international financial institutions. It will complement the authorities’ strong policy response to the crisis and their planned post-COVID-19 fiscal consolidation and reforms to promote growth that benefits all South Africans. The authorities have committed to manage the IMF’s emergency financial assistance with full transparency and accountability.
Following the Executive Board’s discussion, Mr. Geoffrey Okamoto, First Deputy Managing Director and Acting Chair, issued the following statement:
“South Africa’s economy has been severely hit by the COVID-19 crisis, reporting the highest number of cases in sub-Saharan Africa. A deep economic recession is unfolding as the decline in domestic activity and disruptions in the global supply chain resulting from the COVID-19 shock have added to a pre-existing situation of structural constraints, subdued growth, and deteriorating social outcomes.
“The authorities responded swiftly to the crisis. The June Supplementary Budget Review presented to Parliament contains a plan to reprioritize budget appropriations toward health and mitigation spending and devote additional budgetary outlays to protect the poor, the unemployed, and the most affected businesses. The South African Reserve Bank (SARB) took strong and timely action by lowering significantly the policy rate and ensuring adequate liquidity conditions in the financial system.
“The emergency financing under the RFI will help fill the urgent BOP needs that emerged as a result of the pandemic and thus contain the economic disruption and its regional spillovers. The RFI will also help catalyze other disbursements. 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.
“There is a pressing need to strengthen economic fundamentals and ensure debt sustainability by carrying out fiscal consolidation, improving the governance and operations of SOEs, and implementing other growth-enhancing structural reforms. The COVID-19 crisis heightens the urgency of implementing these efforts to achieve sustainable and inclusive growth. Specific reform commitments at the time of the October Medium-Term Budget Policy Statement will be a critical step to buttress the credibility of the reform efforts and should be followed by steadfast implementation. Efforts to preserve the central bank’s inflation mandate and proactive bank regulation and supervision, particularly for small banks, will also be important.”