President Cyril Ramaphosa
President Cyril Ramaphosa

Economists back decision to approach IMF, World Bank for Covid-19 relief funds

By Bongani Hans Time of article published Apr 23, 2020

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Durban - Durban - Although the International Monetary Fund (IMF) and the World Bank have a history of exploiting countries with distressed economies, South Africa would have little choice but to approach them for a loan to deal with the Covid-19 financial crisis, said University of KwaZulu-Natal economist Dr Ntokozo Cele. 

Cele said the country might be safe from being exploited by the two institutions because “the kind of support they are offering now has a different set conditions and lending terms.”

President Cyril Ramaphosa on Tuesday announced that the government would spend R500 billion dealing with challenges of Covid-19. He said the R130 billion would come from the current government budget, while some of the money would be borrowed from the World Bank, International Monetary Fund (IMF), the Brics New Development Bank and the African Development Bank. He said the institutions were already working with the national treasurer on various funding transactions. 

“Some of these institutions have created financing packages that are aimed at assisting countries that are having to address the coronavirus crisis like us,” said Ramaphosa.

Cele said it was good that the IMF and World bank had made it clear that their Rapid Credit Facility (RCF) would be interest free with minimal conditions to the countries facing financial crisis  as a result of the coronavirus.

 “In addition, this facility will have a grace period of 5 and half years, and final maturity of 10 years. Even more interesting I believe is the fact that this support will be offered without any ex-post program reviews,” said Cele. 

The EFF had expressed scepticism about Ramaphosa’s announcement on the World Bank and IMF being used as sources of the economic relief package. 

“The IMF and World Bank loans come with restrictive conditions, which will deprive South Africa of its fiscal and monetary policy in the future,” read the EFF statement. 

University of Cape Town economist Dr Mike Morris said approaching the IMF and World Bank was the only option if the government was looking for a huge sum of money. 

Although he did not criticise the Brics Bank, Morris said: “People might be thinking that the Russians and Chinese (Brics Bank) are not going to impose conditions of some kind, which is naive.”

He said he foresees the international financial institution imposing lower loan conditions on South Africa “given the global crisis.” 

Another economist, Krugel Lullu said she was expecting Ramaphosa to confirm and explain on Thursday evening or Friday the announcement he made on Tuesday about approaching the international financial institutions.

“A lot of people in government are not necessarily wanting to go to the IMF because of measures that are sometimes announced by the IMF in terms of what you need to do in order to get the money. 

“This could force us to make some economic changes that we need to, but there are also those that criticise the IMF by saying that some of the measures are too strict, and they can get the country stuck in poverty for a longer period of time,” said Lullu.

Political Bureau

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