The South African economy has been struggling for years now. Since the election of Cyril Ramaphosa, the situation was supposed to get better but instead, the economy has been contracting while unemployment has been on a steep rise. The year 2020 was supposed to be one of the most positive years for South Africa in a long time. However, due to the novel coronavirus pandemic, the country is now expecting a whopping 7% economic downfall.
The COVID-19 pandemic has already infected millions of people around the world. South Africa was managing well until the deadly infection started to spread quickly within the country. As of now, the number of daily cases is soaring while the country’s national health services struggle to accommodate the infected patients. Things are not expected to change a lot in the coming months. The top scientists from all around the world are expecting a major second wave with the wake of winter and dropping temperatures.
The economy of South Africa is already severely affected by the pandemic. The national currency has been devaluating for years, but now, it has broken all the records. Some of the best Forex brokers in South Africa have said that the shift in currency value has resulted in the soaring rates of forex trades made within the country.
The IMF will support South Africa with R70 billion amid the pandemic
The International Monetary Fund has launched its emergency tool that allows fast financial assistance to affected countries, bypassing many complex and lengthy procedures that would have occurred otherwise. As a result, the country will receive funding in the amount of R70 billion, equal to roughly USD 4.3 billion. This assistance will be a significant boost for the country’s struggling economy.
The assistance will be provided through the Rapid Financing Instrument, designed especially for the COVID-19 crisis and economic aftermath caused by it. The recovery process will be harsh for many less-fortunate countries, including South Africa. Such nations should simply prove to the International Monetary Fund that they are facing a major crisis. In response, the IMF will provide them with the unconditional and low-interest loans within a short period of time.
These loans are mainly aimed at helping nations out with the budget deficit. Yet, this sparks the risk that some nations will not be able to pay the loan amidst the forced austerity measures. In the case of South Africa, as a result of a whopping 7% economic fall, the budget deficit will soar to an estimated 15% of the GDP’s value. This simply means that the government will undoubtedly need to take up more financial responsibilities from international donors in order to substitute for this big deficit.
During the economic crisis caused by the coronavirus pandemic, many countries experienced a downturn in credit ratings as well. In simple terms, this means that international donors and foreign authorities able to support governments no longer have trust in the nation. South Africa happens to be one of those countries. Therefore, South Africa will have a problem receiving the support it needs. Yet, the IMF has conditions that should be met if the country wants to receive financial assistance.
The amount will be transferred to the state accounts in one go. However, we do not yet know when exactly this will happen. The IMF has not announced a specific date for the transaction but stated that as soon as the government receives the support, they will be free to spend it as they want. The South African government and the national treasury stated that the vast majority of the support will be spent on assisting frontline workers, national health services and economic reform. However, these are very extensive categories that fall under the general requirements of the IMF’s funding program.
The IMF does not have any preconditions for the spending of financial assistance. However, the international organization requires the country to start repaying the loan in 40 months, over a period of 20 months.
This IMF support package has a number of major benefits. The biggest advantage of this particular financial assistance is that it is a very cheap way to finance the recovery of the country. The interest rate is very low and the conditions are advantageous. Moreover, it will help South Africa attract more affordable funding in the months to come.