IMF loan could provide Mboweni with leverage to push for reforms, says academic

While there should be no cause for concern about any possible strings attached to the International Monetary Fund’s (IMF) $4.3 billion (about R70 billion) Covid-19 loan, the assistance could provide Finance Minister Tito Mboweni with the leverage to push for reforms, according to a leading academic.

Conceding that the Covid-19 outbreak had led to “a sharp economic contraction and significant financing needs in SA”, the IMF extended the funds under the Rapid Financing Instrument (RFI) to support the government’s efforts to address the severe health and economic impact of the coronavirus pandemic.

Dr Sithembile Mbete, a University of Pretoria senior political lecturer, refuted claims that the loan came with conditions, despite the IMF being known for its Enhanced Structural Adjustment Programme – partly blamed by some critics for the collapse of the Zimbabwean economy.

Mbete said: “This loan does not come with the conditions normally attached to IMF loans, like capping government spending.

“All SA had to do was to show the IMF that the country was in a crisis because of Covid-19 impacting severely on the tax shortfalls and filling the gap from taxes we have not been able to collect. This loan is part of an agreement that all member states have reached, with SA being a regular contributing member to the IMF.

“A similar facility was provided during the 2003 financial crisis.”

Mbete said the biggest political question was “seemingly government – Tito Mboweni, in particular – are likely to use the IMF loan to push for reforms that have been politically difficult to get through”.

Government, said Mbete, assured the IMF of “certain policy steps it was likely to take”, despite the loan being approved without conditions.

“The politics of this loan are not about the IMF imposing policies on SA, but rather about government taking the loan to push through reforms,” said Mbete.

These, she said, included trimming public service spending and the privatisation of poorly performing state-owned enterprises. While agreeing with Mbete, University of Stellenbosch Business School development economist Dr Nthabiseng Moleko was concerned “because debt sustainability has been declared … as an issue, with high debt servicing costs taking more of our fiscus”.

Moleko said: “Almost a fifth of our fiscus goes towards servicing debt, removing government expenditure from government programmes that would advance service delivery to SA people. Any increase in debt should be looked at with scepticism.

“Our ability to service debt is underpinned by the ability to increase revenue generation. There is no concise recovery plan on how to increase growth. The SA growth problem started before Covid-19, when we went through a technical recession, with the estimated contraction being 7.2% – worse than the African 3.6% … pointing to a structural problem not dealt with in any economic strategy to date.

“If the money is not going to building our productive capabilities … we will remain with most of the problems we had before Covid-19.”

– brians@citizen.co.za

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