SOUTH AFRICA’S R70 BILLION IMF LOAN, WHAT DOES IT MEAN? – BRADLEY MAASDORP

Image: JP Valery (Unsplash)

The 2020 COVID- 19 pandemic approached not only one country but our entire world with little to no warning signs. Not many countries have had the opportunity to prepare themselves for the outbreak of the virus. From an economic point of view, most states have suffered severely with the loss of income, jobs and  decresed economic activity.

This article aims to unpack and understand the rationale behind South Africa’s acceptance of an International Monetary Fund (IMF) loan to help cushion the blow of COVID-19 on South Africa’s economy. Furthermore, the article will analyse a few positive and negative influences of the IMF’s R70 billion (US$ 4.3 billion) loan. 

Firstly, one should identify what the role of the international organisation like, the IMF,is. The IMF has a goal of working towards stabilising economies in developing states, monitoring financial and economic policies, securing financial stability and acting as a lender of last resort. Economically, with the outbreak of COVID-19, South Africa is struggling with a high number of job losses, firm closures and increased levels of social hardship. COVID-19 has had negative implications on the cost of daily living conditions for the ordinary South African citizen. In addition to this, the devastating effect of COVID-19 on the economy resulted in millions of workers left without an income. Leading to the IMF’s goal in assisting towards policy actions such as high employment, economic growth and poverty reduction. 

The IMF has approved South Africa’s request for emergency financial support. One can argue that a form of Dependency theory can be identified within the financial support statement. A simple understanding of Dependency theory is that of a relationship between the Global North and the Global South states. In which Global South states often rely on the Global North for assistance in terms of trade or economic aid. The IMF serves as a financial supporting organisation, whereby the Global South depends on financial support, especially during the COVID-19 pandemic, on their economies. South Africa is under financial strain and needed assistance from the IMF. States look to generate funding from internal investments from their domestic market and look for foreign direct investments (FDI). When states struggle to generate this income, they look to organisations like the IMF for assistance. This, in turn, means a state like South Africa gives up some of its sovereignty to an external actor like the IMF in exchange for these loans, as the IMF now has some input in how South Africa’s economic policy can be shaped. Although this loss of sovereignty seems negative, a positive can be taken from these loans whereby it lessens the pressure from the government to fund its debt. A valid question that can be asked: “Is South Africa heading to a debt crisis?”.

In terms of the South African context, there is a problem with the balance of payments. The South African budget deficit is increasing, and the IMF can provide financial support to solve payment difficulties. The IMF’s loan has a role to resolve the problem to finance the deficit. In theory, the IMF’s loan initiative is a step in a positive direction to assist South Africa in its financial crisis. This loan, however, has led to multiple raised eyebrows from economists to political analysts to the ordinary citizen. Tackling any International Political Economy phenomena, one should return to the basic question asked by International Political economist Susan Strange, “Cui Bono”. The IMF’s loan has resulted in many questions such as: “Who is the money going to benefit?”; “In whose hands will the money be placed in?”.This scepticism is justified as the levels of corruption have increased, especially with regard to the looting of the various COVID-19 funds. Corruption affects the legitimacy, equitability and ethical distribution of the IMF loan. One does not want COVID-19 to be a reason for a loan conspiracy which leads to acts of unlawfulness by officials in authoritative positions. If the notion of corruption and the greed for money were to be non- existent in our human language or nature, then the IMF’s loan would 100%, with full confidence be beneficial to support South Africa. In reality, however, we live in a society whereby corruption and greed challenges effective development and economic growth.  

From a political perspective, COVID-19 is a challenging tool to identify how effective the South African government is, in terms of their ability and effectiveness in dealing with such a pandemic. The government has increased pressure to provide for its citizens in terms of health, financial aid and food security. It all boils down to good governance. One should also note that the IMF provides a loan and it is not a donation. South Africa is in debt and has to repay the IMF’s loan. In a positive sense according to Danny Bradlow, the loan interest is approximately 1.1%. This is a loan at a cheaper interest rate and can be repayable if the government ensures that the amount to repay the IMF is budgeted for.

To conclude, this article analysed and critiqued the R70 billion loan provided by the IMF to assist South Africa in their financial and budget deficit problem. If the loan is distributed wisely then it would be effective to support the South African economy in the time of a pandemic. If there is weak governance and corruption then the loan would not be beneficial for South Africa and her people. Whether there will be a ripple effect on the IMF’s, this loan is uncertain. With good governance, ethical and constitutional procedures the IMF’s loan can prevent an economic crisis in South Africa during the COVID-19 pandemic.

By Bradley Maasdorp

Bradley is a 21 year old, 3rd year BPolsci International Relations student at the University of Pretoria. His goal is to educate and enlighten humanity to embrace their critical thought skills. He enjoys writing and believes that through writing and communication one can better understand the construction of the way of life. He attempts not only to look at global circumstances from one perspective but to also use critical thought skills to understand the modern social political complexities. 

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