Chief Economist at Econometrix, Dr Azar Jammine, has backed government’s decision to seek financial assistance from the International Monetary Fund (IMF) to mitigate the impact of the coronavirus pandemic .
There have been mixed reactions to the IMF loan, the recent being the SACP criticising the move as a “grievous mistake”.
Jammine says the country would otherwise need to borrow money from capital markets at higher interest rates of between 8% to 11%.
He says the IMF loan is the best possible offer on the table with lower interest rates:
“The beauty about the IMF loan is that it gives us a little bit of a break on 70 billion rand out of the 775 billion rand that we have to borrow this year in other words for about 10 percent of our debt that we have to borrow, we getting at 1.1%.”
“By going to the IMF and getting a loan at 1.1% per annum instead of 8-10% per annum, we will effectively be saving around 8-9 billion rand of government spending every year that would have otherwise have to go on servicing debt.”
In the video below, Political party leaders react to IMF’s R70 billion loan to SA:
The statement by the economist comes after the IMF approved South Africa’s request for emergency financial support to mitigate the social and economic impact of the coronavirus pandemic.
The low interest loan is worth around R70.6 billion ($4.3 billion).
Early in July the African Development Bank also approved a R4.7 billion loan to South Africa as part of its COVID-19 response facility, while the New Development Bank approved about R16.4 billion loan as part of its COVID-19 Emergency Programme.
According to the IMF, under its rapid financing instrument due to the COVID-19 pandemic, South Africa was able to access the financing at very low interest rates relative to the higher borrowing costs the country would generally face.
This is the first time the South African government has sought a loan from the IMF since the dawn of democracy in 1994.
In the video below, is a discussion on the loan: