The International Monetary Fund approved $4.3 billion (R70.7 billion) in emergency funding for South Africa, the largest emergency disbursement for any country yet to assist with fighting the coronavirus pandemic.
The funds “support the authorities’ efforts in addressing the challenging health situation and severe economic impact of the Covid-19 shock,” the Washington-based lender said in a statement Monday.
“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.”
With more than 445,000 confirmed Covid-19 cases and almost 7,000 fatalities, South Africa is the worst-hit country on the continent.
A lockdown aimed at curbing the spread is devastating the economy, with the government expecting it to contract 7.2% this year.
Even before the pandemic hit, South Africa was stuck in its longest downward cycle since World War II and the gross domestic product probably contracted more than 30% in the second quarter, according to central bank forecasts.
Government debt is now projected to peak at close to 90% of GDP in 2023-2024 and the budget deficit will swell to a record this year.
“Going forward, our fiscal measures will build on our policy strengths and limit the existing economic vulnerabilities which have been exacerbated by the Covid-19 pandemic,” Finance Minister Tito Mboweni said in a statement Monday.
The lockdown that started on March 27 and has been eased gradually is weighing on output and will further reduce tax revenue that’s been falling short of targets for most of the past five years.
President Cyril Ramaphosa announced a 500 billion-rand ($29.9 billion) stimulus package in April and the National Treasury has said the government is seeking $7 billion of this from multilateral lenders.
The New Development Bank has already granted a $1 billion loan, while the nation is borrowing about R5 billion ($300 million) from the African Development Bank.
The country will seek up to $2 billion from the World Bank, according to Treasury Director-General Dondo Mogajane.
The IMF money comes after some senior officials in the ruling African National Congress and its alliance partners initially rejected suggestions that the government seek help from multilateral lenders, saying the structural adjustments associated with such loans would undermine the nation’s sovereignty.
However, the IMF emergency loans that are aimed at the virus and health interventions come without the normal conditions that have concerned past borrowers.
The IMF in April doubled its emergency lending capacity to $100 billion, and Managing Director Kristalina Georgieva said that the fund will mobilize more than $18 billion to respond to requests from more than 40 African countries.
The lender has now approved more than $14 billion in emergency financing to help nations on the continent, including $3.4 billion for Nigeria and $2.8 billion for Egypt. On top of that. the IMF last month approved a 12-month $5.2 billion standby arrangement for Egypt.