African economies are at risk of being thrown under the bus, as a global pandemic is leaving wreckage in most of the continent’s sectors. As such, governments on the continent need external financial help to try to pump the brakes on the downward drive. But it appears South Africa has other ideas.
The International Monetary Fund (IMF) and the World Bank are long-standing lenders to Africa. Even though the institutions felt the continent is borrowing too much recently, the coronavirus outbreak has cajoled the lenders into helping more.
As of March, the IMF had received 20 requests for financial assistance from African countries. The World Bank, on its part, has approved emergency funds for various countries to help them fight the pandemic.
On the 25th of March, the International Monetary Fund and the World Bank issued a joint statement to the G20 nations concerning debt relief for the poorest countries. As it was, the lenders wanted for these countries to be assisted in all ways possible, including pausing former debt relations.
Crucially, the two funders recognise the money freed by the suspension of debt repayment is only the first step that will allow time for an assessment of the crisis’s impact and the financing needs of each country.
At least 13 African countries have been allocated loans from emergency funds at multilateral institutions, including from a USD 50 Bn rapid credit facility at the IMF. The loans from the IMF and World Bank include USD 221 Mn to Senegal, USD 109.4 Mn to Rwanda, USD 82.6 Mn to Ethiopia and USD 50 Mn to Kenya.
South Africa is the most hit country in Africa in terms of coronavirus. The nation is in the middle of a national 21-day lockdown. President Cyril Ramaphosa is the leader of the African Union (AU) but he’s quite busy, which is why the AU delayed to present a copious strategy for the pandemic.
But what’s more important is that even while the IMF and the WB have joined hands to help, South Africa seems to have strong opinions about borrowing form the Bretton Woods institutions. Recall that the country entered another economic recession before the COVID-19 outbreak.
While Sub-Saharan Africa has been advised to embrace the IMF/WB proposal, South Africa believes the lenders are foreign threats to national independence. This could be the same reason some other African politicians refuse to take their loans.
The African National Congress—SA’s ruling party—in conjunction with its trade union and Communist Party allie have made it clear the country is not taking financial aid from the IMF and the WB.
In a statement issued yesterday, Monday 6th, the party rejected any suggestion of the IMF or the WB in respect in loans. More so, the government of the country was warned to not make decisions “that will subordinate South Africa’s sovereignty to the dictates of IMF and the like”.
Even though South Africa has Africa’s most diversified economy, the country is in dire need of assistance. Weeks into the viral outbreak, its currency has been hitting record lows nearly every day. In fact, the country’s central bank has warned that the economy could further decline by 4 percent in 2020.
South Africa’s supposedly trusted source for funds is the New Development Bank. The Shanghai-based institution was formed by the 5 BRICs bloc countries—Brazil, Russia, India, China and South Africa—in 2015. South Africa plans to take USD 1 Bn from the Bank while mulling the World Bank’s USD 50 Mn offer.
The country could get far more funds from the Washington-based IMF than it could from the New Development Bank, economist Mike Schussler says, before admitting that the conditions and scrutiny that come with an IMF loan might be less appealing.
“The New Development Bank is still a small institution. It’s good that we’re getting help but there is access to a lot of money from other sources. I imagine government does not like that because IMF watches over your shoulder.”
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