The IMF doesn’t play around – terms and conditions apply

It’s the tail end of the International Monetary Fund (IMF) statement saying it will grant South Africa a $4.3 billion (R70 billion) loan to help tackle the Covid-19 pandemic that hints at why the negotiation had been so protracted.

When the lockdown commenced on 21 March it was clear that some kind of bailout would be needed, as the coronavirus crisis had pushed the government’s fiscal position from bad to worse.

GDP fell 2% for the first quarter and tax revenue is expected to fall by R304 billion to R1,099 billion for the current financial year.

This means the deficit is now projected to balloon from 2.6% to 9.7% for the 2020/21 period.

Although the lender of last resort has been talking with Treasury for a while, Finance Minister Tito Mboweni made it clear in a media briefing after his supplementary budget speech on June 24 that the negotiations have been anything but easy.

He had already secured $1 billion (R16.5 billion) in funding from the Brics-backed New Development Bank, but said the negotiation with the IMF had been “protracted”, “tough” and “difficult”.

Issues with conditions

At the time, Mboweni didn’t say exactly what the holdup was, only that there were issues around the conditions of the facility.

The IMF’s fees at 1.1% over 3.25 to five years are not onerous, but the lender does tend to get in the weeds when it comes to governance matters around how the money is used.

In December 2018, for example, it got the Angolan government to agree to strengthen its public finance management legislation, as one of the conditions for it getting access to a $1.24 billion facility.

To put it bluntly, the IMF got a country to get its legislator to agree to change laws in order for it to access this funding.

This is why it’s telling that the IMF’s first deputy MD and acting chair Geoffrey Okamoto noted in the statement that: “The authorities’ [the South African government’s] commitment to transparently monitor and report all use of emergency funds is crucial to ensuring Covid-19 related spending reaches the targeted objectives.”

In other words, it wanted some sort of guarantee that the funding would not fall prey to corruption.

Last Thursday (July 23), Okamoto and the IMF received this when President Cyril Ramaphosa in a televised address committed to using the state’s security and prosecution resources to do just that.

Anti-corruption squad

Among other measures, Ramaphosa announced the creation of the “collaborative and coordinating centre” that will investigate Covid-related corruption.

It brings together the Financial Intelligence Centre, the Independent Police Investigative Directorate, the National Prosecuting Authority, the Hawks, Crime Intelligence and the SAPS Detective Service, the South African Revenue Service, the Special Investigating Unit (SIU) and the State Security Agency.

Ramaphosa said 36 cases are already being investigated.

To further speed up investigations, Ramaphosa also signed a proclamation authorising the SIU “to investigate any unlawful or improper conduct in the procurement of any goods, works and services during or related to the national state of disaster in any state institution”.

“This empowers the SIU to probe any allegations relating to the misuse of Covid-19 funds across all spheres of the state,” he said.

Ramaphosa did not have to wait long to prove that he was taking alleged Covid-19-related corruption seriously.

Earlier this week, his spokesperson Khusela Diko requested The Presidency to “allow her to take leave of absence from all official roles in government, pending investigations on recent allegations involving her and her husband [AmaBhaca King Madzikane II Thandisizwe Diko] in tender irregularities in the Gauteng Department of Health”.

Although the issues around Diko still have to play out and it is yet to be seen whether the formation of the collaborative and coordinating centre will result in any prosecutions, it’s already clear that in accepting the IMF lifeline, SA is beholden to the lender.

The IMF effectively told SA that if it wanted R70 billion it would have to jump this high to get it, and the government obliged by giving its best hop.

This article first appeared on Moneyweb and was republished with permission.

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