SA seeks to borrow R95bn from IMF, Brics Bank and World Bank
Treasury director-general says the funding costs will be favourable, but loan covenants and general conditions need to be interrogated
The National Treasury is looking to raise R95bn from multilateral institutions and development banks for business support, job creation and protection of existing jobs in the midst of the Covid-19 crisis.
In a presentation to several parliamentary committees on Thursday, Treasury director-general Dondo Mogajane said $50m would be raised from the World Bank, $1bn from the New Development Bank [Brics Bank], and $4.2bn from the International Monetary Fund (IMF), giving a total of $5.07bn or R95bn. There is no finality yet to any lending from the African Development Bank.
Mogajane said the funding costs of this borrowing will be favourable, but noted that there are risks to multilateral development bank funding, namely that SA is competing with other countries for funding and the loan covenants and general conditions of the institutions need to be interrogated.
This R95bn will contribute to the R500bn stimulus package announced by President Cyril Ramaphosa, with R200bn being allocated for the national credit guarantee scheme; R130bn coming from the base reprioritisation of budgets; R60bn from additional transfers from social security funds; and R15bn from available funds from the department of social development.
Finance minister Tito Mboweni has forecast a sharp downturn of the economy this year with the possibility of a sharp upturn if the right things are done.
Mboweni said the government is in a serious situation as it is not able to collect revenue during the lockdown but there are still significant pressures on expenditure. “We have to find ways to contain expenditure while not inhibiting the growth-enhancing parts of the economy as soon as the lockdown is over.”
Mogajane said it is likely that the recession will be the worst since the Great Depression. The Treasury has forecast a contraction in GDP of 5.4% this year if the pandemic is contained quickly and the economy bounces back; a contraction of 12.1% if the pandemic takes longer to contain and the economic recovery is slower; and a contraction of 16.1% if the pandemic endures even longer and recovery is spread over a longer period.
In the quick scenario, Treasury forecasts that about 2.9-million workers will lose their jobs; in the slow scenario about 5.4-million; and in the long scenario, about 7.1-million as a result of the Covid-19 crisis and the downgrades by credit rating agencies.
There is a high level of uncertainty in terms of the duration and intensity of the recession “due to the pandemic itself, its macro-economic fallout and the associated stresses in financial and commodity markets”.
The comments were made during a briefing by the Treasury to a joint committee of parliament’s two finance committees — the appropriations committee and the standing committee of public accounts — on the fiscal implications of Covid-19 and the interventions to save and stimulate the economy.
The SA Reserve Bank is forecasting a contraction of 6.1% this year, followed by growth of 2.2% in 2021 and 2.7% in 2022.
Ratings agency Moody’s Investors Services does not believe the R500bn support package will be enough to prevent a sharp contraction in GDP over 2020. It expects the budget deficit to surge to 13.5% of GDP in the 2020/2021 fiscal year, pushing up debt-to-GDP to 84%, inclusive of guarantees to state-owned enterprises.
The agency has cut its GDP forecast for SA for 2020 to a contraction of 6.5%, with a rebound of 4.5% forecast for 2021.
S&P, which downgraded SA further into junk status this week, expects the economy to shrink by 4.5% in 2020. It sees the budget deficit widening to 13.3% of GDP in 2020 and debt-to-GDP rising to 84.7% by 2023.
Intellidex head of capital markets research Peter Attard Montalto is more pessimistic, forecasting a GDP contraction of 10.6% for 2020.
Update: April 30 2020
This article has been updated with comment.