Picture: 123RF/BUMBLEDEE
Picture: 123RF/BUMBLEDEE

As FM editor Rob Rose recently pointed out, like it or not, SA is lurching towards a clumsy embrace with the International Monetary Fund (IMF), hot on the heels of a Covid-linked loan.

The ANC has long been wary of the IMF. After Nelson Mandela came to power, he reportedly saw the potential benefits of a cheap loan, but the ANC rejected the IMF’s offer of assistance. This status quo continued until last month, when the IMF loaned us $4.3bn as part of its “rapid financing instrument”, which came with a low 1.1% interest rate and some minor conditions.

The government committed to managing the IMF’s emergency financial assistance with full transparency and accountability.

Yet it has not done so.

The IMF’s most recent review of SA paints a worrying picture: subdued investment and exports, increased uncertainty, depressing growth and worsened social indicators.

Risks are materialising at state-owned enterprises (SOEs’); high fiscal deficits have boosted debt; nonresident investors are shedding equities and local currency bonds; inflation is expected to increase; the 30.1% unemployment rate is set to worsen; and the government cut its revenue projection by more than R300bn.

Back in February, the government said an additional R40bn in taxes needed to be raised over the next four years. But that was before the coronavirus came to town. Now, tax collections are lagging 23% compared to last year, and under lockdown the SA Revenue Service (Sars) has forfeited at least R82bn.

SA doesn’t just have a revenue problem, it has a spending problem. As economist Mike Schussler points out, government is spending nearly R50bn a month more than it collects in taxes.

We lost our economic sovereignty a long time ago

The ANC’s left and its alliance partners fear that accepting financing from the IMF would mean that we’d lose our “economic sovereignty”.

For most of the glory days at Sars, the organisation was keenly aware of the fact that it was not just collecting taxes – it was the axis on which our country’s sovereignty turned. The less Sars collected, the more the country had to borrow, and the more it had to borrow, the more it became beholden to its lenders.

But today, as Duncan Artus, chief investment officer at Allan Gray, recently pointed out, the cost of our 10-year government debt exceeds the growth in our economy.

The government has become little less than a delinquent director – it’s ridden with serious and wilful misconduct, gross negligence and a breach of our trust. It’s time we treated it as such.

The IMF is really little more than a business rescue practitioner sent to facilitate the rehabilitation of a company that is financially distressed. Or a debt counselling adviser offering advice on how to more efficiently pay off your debts.

The government forfeited the right to play the sovereignty card when it gave up its sovereignty itself. Our government is not sovereign – it is dictated to by the captured and the corrupt.

(The IMF, by the way, may be headquartered in Washington, DC, but there is nothing American about it. Its funding comes from contributions made by all of its member countries, it is never headed by an American, it employs very few Americans, and – when it comes to both policy positions and practices it endorses – takes a rather un-American view of most things.)

The IMF would like to see “growth-enhancing structural reforms” in SA. The fact is, you’d be hard-pressed to find a South African who’d like to see something different.

Its advice to SA has been sensible: in the absence of fiscal space, a gradual and growth-friendly fiscal consolidation and increased spending efficiency are needed. The consolidation should be accompanied by reforms that reduce the cost of doing business and boost private investment, including improving governance, promoting competition, making labour markets more flexible, and urgently addressing SOE weaknesses.

And it’s offered its services – for free – from a capacity development perspective, including enhancing the medium-term fiscal framework to stabilise debt, strengthening tax administration, and upgrading national accounts statistics.

The sooner, the better

We’re out of options.

Given that SA has been downgraded by credit ratings agencies, and the appalling shape of the economy, both local and foreign investors have limited appetite for SA debt. The current IMF loan has us paying interest of about 1.1% – while the rate for government bonds of comparable maturity is about 7%.

Bigger problems require bigger loans. As is the case with most business rescue programmes, the sooner you get professional help, the better. The sooner SA embraces IMF assistance, the less damage we need to curtail, the lower the funding needs are likely to be, and the less restrictive the conditions are likely to be.

The longer we wait, the closer we come to the bottom of that death spiral predicted by Artus.

SACP general secretary Blade Nzimande has likened the IMF loan to “suffocation by imperialist interests”. Even if that were true – and it’s not – is that any worse than suffocation by a government that has proved to be inept, captured and corrupt?

*Snyckers is an independent illicit trade expert. Her clients include the IMF, after having previously worked as an executive at Sars, and a compliance manager with the tax agency in Singapore. Her exposé on the role of Big Tobacco in fuelling illicit trade – Dirty Tobacco – was released in May 2020.

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