R70 billion IMF loan won’t compromise SA’s fiscal sovereignty, says Tito Mboweni

R70 billion IMF loan won’t compromise SA’s fiscal sovereignty, says Tito Mboweni

Finance Minister Tito Mboweni.

Finance Minister Tito Mboweni.

  • A R70-billion International Monetary Fund (IMF) loan won’t compromise South Africa’s fiscal sovereignty, according to Finance Minister Tito Mboweni.
  • In July, the IMF granted South Africa the loan that was part of R95 billion sought from multilateral institutions.
  • Mboweni said the loan supported the spending plans in the June 2020 special adjustments budget.

South Africa’s R70 billion loan from the International Monetary Fund (IMF) was not subject to conditionalities that compromised its fiscal sovereignty.

According to Finance Minister Tito Mboweni, government is obligated to provide broad spending reports to the IMF.

This, Mboweni said, is in line with the requirements of the Public Finance Management Act.

In July, the IMF granted South Africa the US$4.3-billion (around R70 billion) loan, which was part of R95 billion being sought from multilateral institutions to support job creation and protection for businesses negatively impacted by the Covid-19 pandemic.

In response to a written parliamentary question from DA MP Haseena Ismail, Mboweni said the loan supported the spending plans in the June 2020 special adjustments budget, along with other sources of borrowing.

“At the time of the special adjustments budget, the total planned borrowings amounted to R776.9 billion. This was revised substantially down to R670.3 billion at the time of the 2021 budget, with the IMF loan being around R75 billion of this. South Africa will repay the loan over a maximum five-year period as stipulated in the letter of intent (LOI),” he said.

Mboweni said the loan is part of the overall pool of government borrowings.

“At the time of finalising the arrangement with the IMF, there was no credible information internationally on a widely-available vaccine, and this was not the intended purpose of the loan. Following the development of a vaccine, the government has made allocations for a full-vaccination programme over the medium-term expenditure framework [MTEF]. The spending ceiling was lifted in 2021/22 mainly for the vaccine, meaning that borrowings are in part directed towards the vaccine,” he said.

Last year, the SA Communist Party (SACP) said it was not happy about IMF’s billion loan to the country.

SACP general secretary Blade Nzimande said the loan exposes the economy to imperialists.

Nzimande, also Higher Education, Science and Technology Minister, described the loan as a grievous mistake.

But Mboweni said the loan was a rapid financing instrument (RFI) facility, which was a temporary arrangement by the IMF for its member countries in response to the Covid-19 outbreak.

“It is a loan that provides rapid and low-access (including low-interest) financial assistance to member countries facing an urgent balance of payments need, without having to agree to a full-fledged IMF structural adjustment program. It provides support to meet a broad range of urgent needs, including those arising from commodity price shocks, natural disasters, conflict and post-conflict situations, and emergencies resulting from fragility. South Africa applied for the loan in the context of an unprecedented fall in government revenues, coupled with a spike in borrowing costs in the market,” he said.

Mboweni also said the loan is meant to implement a “counter-cyclical fiscal policy”, by avoiding a dramatic and damaging reduction in government spending in response to a fall in tax revenues due to the pandemic.

According to Mboweni, it also financed a sizeable portion of the government’s Covid-19 relief package. 

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