The government will use the R95 billion it is borrowing from international financial institutions to support businesses hit hard by the Covid-19 pandemic as well as create and protect much-needed jobs.
President Cyril Ramaphosa last week announced a R500bn economic and social response to the effects of the deadly Covid-19 virus and Finance Minister Tito Mboweni later outlined the government’s R800bn fiscal and monetary package.
The National Treasury on Thursday indicated that it would be borrowing R95bn from multilateral financial institutions – the International Monetary Fund (IMF), the World Bank and BRICS’s New Development Bank (NDB) – which will provide business support, job creation and protection.
South Africa has borrowed US$4.2bn (over R77.4bn) from the IMF, while the African Development Bank’s funding is yet to be determined, and the institution is still assessing the requests from member countries.
This week, the IMF approved US$3.4 billion (about R63bn) in emergency financial assistance to the continent’s largest economy, Nigeria, through its rapid financing instrument to support efforts to address the severe economic impact of Covid-19 and the sharp fall in oil prices.
According to the Treasury, the country has borrowed over R18.4bn from the NDB while the World Bank is expected to provide about R922 million.
The funds will be repaid for up to 35 years, which will include grace periods and Treasury has assured the country that there will be no conditionalities post the disbursement of the billions and at preferential lending rates.
Funding costs are favourable relative to the market as the pricing is not based on the country risk premium, Treasury said.
The remainder of the R500bn includes the R200bn national credit guarantee scheme to assist companies with a turnover of R300m or less hard-hit by Covid-19.
Another R130bn will be reprioritised from Mboweni’s budget presented in February and National Treasury director-general Dondo Mogajane has explained that R100bn will come from national government departments while provinces will contribute another R30bn.
An additional R60bn will be made up of transfers and subsidies from the social security funds and another R15bn is from the Department of Social Development’s 2020/21 appropriation.
The government is committed to securing low interest rates and the IMF portion of the funding will be provided at 1%.
The EFF has rejected the government’s move to secure loans from the IMF and World Bank, while ANC allies Cosatu and the SACP made an about-turn to support the decision to seek funding from international financial institutions.
ANC secretary-general Ace Magashule has advised the government to ensure that the conditions of the loans do not compromise the country’s sovereignty.
The African Transformation Movement has called on Ramaphosa to publicly disclose the terms and conditions of the commitment to fund part of the stimulus package.
Mboweni has described opponents of the moves to obtain funding from international financial institutions as trying to make a mountain out of a molehill.
South Africa, Mboweni explained, is a member of international financial institutions, pays subscriptions and is entitled to approach them when the need arises.