Picture: 123RF / BAKHTIAR ZEIN
Picture: 123RF / BAKHTIAR ZEIN

On Monday the IMF board approved a R70bn support package for SA to navigate the economic hardships imposed by the Covid-19 pandemic and resulting low growth in trading partner countries, as well as the decline in domestic production.

It is not uncommon for countries recovering from economic distress to source loans from financial intermediaries or international organisations to finance the recovery. SA was already in a technical recession before the pandemic, with worsening unemployment levels and rising poverty. The government’s much-needed response to the pandemic has placed great strain on the fiscus and worsened the balance of payments deficit.

The IMF loan provides a much-needed cash injection to boost the economic and public health responses to the pandemic. Whether the loan is good for SA in the long run will depend on the conditions attached to it and its cost, as well as the government’s effectiveness in providing safeguards from corruption and maladministration.

The ANC-Cosatu-SACP alliance has generally been sceptical of the IMF, largely because of the crippling and controversial conditions it imposed on developing economies in the past. Structural conditionality threatens to undermine the sovereignty of the state. The biggest criticism of conditionality is that it is too restrictive on a country’s monetary and fiscal policy and ignores the developmental policy trajectory of many developing countries.

This is particularly problematic for a country such as SA that is seeking to embark on social spending and redistributive programmes such as National Health Insurance (NHI) and the basic income grant. Case studies from a number of African countries show that after the imposition of IMF conditions the economy does not necessarily experience growth, largely due to the IMF’s ignorance of developing countries’ developmental trajectories and their mandate to ensure inclusive growth and the redistribution of wealth.

At this point we do know that the IMF’s financial support is not accompanied by any structural conditionality. It is still unclear whether there are any other conditions accompanying the financing instrument.

The cost of the IMF loan is another important consideration. Some quarters of society have argued that the Treasury has not exhausted options in the local market for financial assistance. The Treasury has defended its decision, saying the IMF is more desirable than local financial institutions because of its very low interest rates. However, because of exchange rate volatility and the deep depreciation of the rand since January, the risk of a dollar-denominated loan is not necessarily in the interest rate but rather in the exchange rate. The loan will become difficult to pay back if the rand were to depreciate further against the dollar, making the loan more expensive for the taxpayer.

The emergency financing is expected to fill the urgent balance of payments needs that have arisen because of the economic disruption. The Covid-19 pandemic has had a catastrophic impact on the economy and jobs. Treasury will have to prioritise investment spending over consumption spending in an attempt to stimulate production through capital goods that can be manufactured, to provide a much-needed injection into the circular flow of income. Again, with limited transparency from the Treasury in terms of capital investment plans, it is difficult to tell if this injection into the economy will translate into job creation.

The auditor-general’s report has revealed that on average government departments and entities lose about 10% of their budget to corruption and mismanagement. The same report indicates an increase in irregular expenditure to R32.06bn from the R25.2bn reported last year. Regardless of where additional sources of financing are sourced, if the government, in all its spheres, does not deal decisively with irregular expenditure and corruption, resources will never achieve their intended purpose.

A robust and detailed plan is required to fix this outrage. In its letter of intent to the IMF, the Treasury has committed to a transparency plan, but given the extent of the corruption problem in SA a simple transparency plan is not enough to solve the systemic and somewhat structural problem of corruption.

The Treasury clearly has a responsibility to take the country into its confidence with regard to the detailed investment plans for this loan, and subsequent plans to safeguard these funds from corruption. Without a clear investment plan for the recovery of the economy it is difficult to determine whether the funds will contribute significantly to the reconstruction of the economy.

• Mulaisi is Cosatu national labour market policy co-ordinator.

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