Indeed, the IMF presented this in their statement on the loan in that they expect the government to “manage the IMF’s emergency financial assistance with full transparency and accountability”. The IMF has done this in relation to South Africa. It’s a simple equation – governments receive money from taxes which they use to pay off the loans that they take out internationally. aea-education.org. Likukela, who is the managing director of Twilight Capital, cited the examples of other countries such as Ghana, Jamaica and Turkey that have all signed these loans. IMF’s acting chairperson, Geoffrey Okamoto, said there was a pressing need to strengthen economic fundamentals and ensure debt sustainability by carrying out fiscal consolidation. “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,” Okamoto said. In South Africa’s case, it has been in one of the most restrictive lockdowns globally for over four months. Taxes are driven by economic activity, namely the production of goods and services that take place within a country’s borders. could risk locking the country into a perpetual debt trap for many years. If the world economy starts reopening and South Africa is not set to join in as this happens, it will not only be left behind, but it could have catastrophic effects on the country’s currency. It is a loan, not a grant, so it is bound to come with some sort of conditions and of course repayment is key amongst them, so these conditions, minor as they may appear to be, will hamper Namibia’s economic recovery,” Likukela cautioned. It goes without saying that the longer a country remains in some form of lockdown, the worse it is for that country’s economy. The country has announced that major expenditures in various [...] sectors, including [...] education, would be protected through the IMF loan allocated in December 2008 to fight [...] the effects of the fuel and food crisis. This in turn would jeopardise its ability to fund its foreign debt obligations and risk the possibility of defaulting on these payments. This is particularly important because it means that the country will hopefully have significantly recovered from the costs that have been incurred from the effects of the Covid-19 pandemic. The balance created by these various currencies appreciating and depreciating against each other helps to buffer South Africa from significant changes in a single exchange rate. If the economy shrinks, this directly affects the government’s ability to acquire revenue through taxes that are used to pay back these bonds. It was coined by economists Barry Eichengreen, Ricardo Hausmann and Ugo Panizza who analysed the challenges facing developing countries in raising. As in any situation where an individual applies for a loan, there is required to be a level of due diligence. The RFI, which can be used in a wide range of circumstances, replaced the IMF’s previous emergency assistance policy. However, expectations are that the country’s economic growth is forecast to shrink by 7%. The International Monetary Fund (IMF) has approved a R70 billion (US$4.3 billion) loan for South Africa to help the country manage the immediate consequences of the fallout from Covid-19. Parsons, however, said these reforms policy commitments had, therefore, in effect become a self-imposed “structural adjustment agenda” for South Africa, against which the country’s future economic performance would be tested. C/o Dr. W.Kulz & Kerby Street “In securing the special IMF loan, South Africa has apparently willingly made commitments which will enable it to repay the debt. With the rate that the IMF is charging on this loan, it makes it very cheap for the country to pay back. Please sign in or register to enable this feature. The IMF has done this in relation to South Africa. Okamoto said South Africa needed to improve the governance and operations of state-owned enterprises and implement other growth-enhancing structural reforms. Responding to questions from New Era’s Inside Business, Likukela explained that Namibia was already in a depression before the Covid-19 pandemic and therefore using the coronavirus pandemic as a guise to approach the International Monetary Fund (IMF) for a loan does seem a bit odd and worrisome. “Given the state of the South African economy, which influences the Rand, this is a big risk and must not be taken lightly,” Likukela warned. If these activities increase, the government makes more money and funds its debt. could risk locking the country into a perpetual debt trap for many years. Tel: +264 61 2080 800, Accepting the loan was largely a no-brainer as not only will the IMF not impose any conditions on the country, but the interest on the loan is also small, approximately 1.1%. In addition, Likukela pointed out that the IMF loan is denominated in foreign exchange and Namibia has to bear the risk that if the Rand, to which the Namibia Dollar is linked, depreciates then the loan and the interest on it will become more expensive. Highlighting the dire state of the economy and the effects of weak and corrupt governance, the DA has called for increased transparency in the management of the loan. DM. The DA believes it represents a “watershed” moment for the country as it is the first time since 1994 that the government has had to resort to borrowing from the IMF. Assume, for example, that the entire loan was only in dollars, if the dollar increased significantly in value, this would force additional financial obligations on the country – unless, of course, South Africa was unable to secure the loan at a fixed exchange. Odendaal said it was also a positive that the IMF was not imposing conditions, but seemed intent on holding the government to the commitments it had already made. By Marialuz Moreno Badia and Paolo Dudine. They are also moving towards scenarios where they have largely reopened their economies or they intend to have their economies operating at full capacity in the face of Covid-19. . Select which newsletters you'd like to receive, The recent R70-billion loan by the International Monetary Fund (IMF) to South Africa has been received with mixed reviews by various segments of the country. The lender of the last resort on Monday approved South Africa’s request for emergency financial assistance under the Rapid Financing Instrument. To do so there must therefore now be demonstrable urgency and resolve in stabilising the policy outlook for the economy and investors,” Parsons said. For me, the concern is that we have had very little dollar borrowing. “This means that the policy pledges made in the supplementary budget must steadily be met and that South Africa actively seeks to remedy chronic problems, such as the excessive public sector wage bill, widespread corruption, poor delivery, weak infrastructural development and dysfunctional state-owned enterprises.”, © 2020 Independent Online and affiliated companies. Adolf Hitler was the first European leader to ban human zoos. The IMF made specific mention of the government’s commitment to pursue medium-term fiscal consolidation and broader economic reform and make related announcements in October in the Medium-Term Budget Policy Statement. They have evaluated the country’s economic situation, its levels of national debt, gross domestic product (GDP), its credit ratings and various other financial indicators, and found SA worthy of taking on this debt. National Treasury Director-General Dondo Mogajane has welcomed the decision, indicating that the government will ensure that it meets the loan conditions and that it has in no way compromised the country’s sovereignty or, The DA believes it represents a “watershed” moment for the country as it is the first time since 1994 that the government has had to resort to borrowing from the IMF. One of the challenges that South Africa will face as it takes on this debt and quite possibly attempts to raise further loans in the future is a term known in economics as “original sin”. It’s a simple equation – governments receive money from taxes which they use to pay off the loans that they take out internationally. “One main negative is that the rand has already appreciated quite a bit, so we’ll get fewer rands at today’s exchange rate than we would have in March/April. It is made up of the dominant world currencies namely the US dollar, pound sterling, the euro, the yen and the Chinese yuan. South Africa has also been granted 20 months to pay back the loan, which only kicks in 40 months after the country has received the loan. North West Business School Professor Raymond Parsons said yesterday the IMF’s special loan facility was a cheap source of finance and formally excluded the IMF’s usual stringent structural adjustment conditions. Thus, financial contributions from member governments are linked to voting power in the organization. National Treasury Director-General Dondo Mogajane has welcomed the decision, indicating that the government will ensure that it meets the loan conditions and that it has in no way compromised the country’s sovereignty or risk.