South African Finance Minister Tito Mboweni ruled out an IMF adjustment programme this week and said the country didn’t need budget support, despite acknowledging that there would be a deep recession this year because of the global COVID-19 pandemic.
Mboweni’s comments came hours after the central bank unexpectedly cut its main lending rate by 100 basis points to 4.25% and predicted a 6.1% contraction in gross domestic product (GDP) this year.
Africa’s most industrialised nation was already in recession before it recorded its first case of the new coronavirus in March. Investors are anxious about how it will fund a budget deficit many analysts expect to exceed 10% of GDP this year.
The country has the most confirmed coronavirus cases in sub-Saharan Africa, at 2,415, and that number is expected to rise significantly as more tests are conducted in far-flung rural areas and overcrowded informal settlements.
Addressing reporters on a conference call, Mboweni gave few clues as to how the government would raise additional funding, saying only that it was “open-minded” about approaching all international financial institutions.
On the possibility of loans from the International Monetary Fund, he said: “We are not looking for budget support. We would be looking for the COVID-19-specific packages that we can access.
“We are looking at programmes which would not be accompanied by any structural adjustment programme,” he said. “We know what to do, we know what our structural reform programme is.”
Asking multilateral institutions, especially the IMF, for cash is deeply unpopular with a faction in the governing African National Congress and trade unions that the party uses to rally support before elections. The ANC and two allies warned Mboweni earlier this month against seeking IMF assistance.
The IMF’s senior resident representative in South Africa told Reuters the government could access up to $4.2 billion from the fund under its Rapid Financing Instrument but that it had not yet requested such support.
Mboweni said cabinet ministers would discuss further possible actions on Wednesday but wouldn’t say when an “emergency budget” might happen.
“The budget revisions are happening almost every day … At some stage very soon we will have to make a consolidated budget statement,” he said.
A copy of the minister’s speaking notes circulated by the National Treasury said elements of the fiscal response included re-prioritising some expenditure towards healthcare, a plan to stabilise debt and shutting down South African Airways.
The airline is under a form of bankruptcy protection and depends on government bailouts for its survival.
President Cyril Ramaphosa’s government has been praised for imposing restrictions on movement before any coronavirus deaths had been recorded. Cases of COVID-19 – the respiratory disease caused by the coronavirus – are increasing but not at the explosive rate initially feared.
But attention is now turning to the probable economic consequences.
Central bank governor Lesetja Kganyago said on Tuesday the bank’s decision to cut rates for the second time in two months was unanimous, after Ramaphosa extended a 21-day lockdown for a further two weeks on Thursday.
The rand weakened after the rate cut and the central bank’s bleak assessment of the economy’s prospects, trading down around 1.5% versus the U.S. dollar by 1530 GMT.