World Markets

South Africa's economy to contract 7.2%, even after loan injection -IMF

Credit: REUTERS/SIPHIWE SIBEKO

South Africa's economy is likely to contract by 7.2% this year due to the impact of the new coronavirus, and growing debt repayments will hamper its recovery, the International Monetary Fund (IMF) said on Tuesday.

JOHANNESBURG, July 28 (Reuters) - South Africa's economy is likely to contract by 7.2% this year due to the impact of the new coronavirus, and growing debt repayments will hamper its recovery, the International Monetary Fund (IMF) said on Tuesday.

The Washington-based lender approved $4.3 billion in emergency financing for Africa's most advanced economy late on Monday.

The IMF loan is part of $7 billion in planned borrowing from international financial institutions. The BRICS Bank has approved a $1 billion loan, and the African Development Bank says it will lend the government 5 billion rand ($304.55 million). Talks with the World Bank are ongoing.

In a country report complied by its executive team published on Tuesday, the IMF said the recession would limit the government's ability to reduce debt and a bulging fiscal deficit.

"Despite the sizable relief package, the pandemic will drive the economy into a deep recession in 2020, with adverse implications for the fiscal deficit and debt," the IMF said.

President Cyril Ramaphosa announced a 500 billion rand stimulus package in April after imposing a strict lockdown in late March to curb infections, which passed 450,000 this week, the most on the continent.

The IMF sees the consolidated budget deficit hitting 16% of gross domestic product (GDP), with public debt at 78.1% of GDP in 2020 and 82.4% in 2021.

It said forecasts were "subject to prominent downside risks", citing increased bond issuance, social instability and bailouts to state-owned firms, especially power utility Eskom, as risks.

"Specific and well-defined fiscal consolidation and reform commitments in the October MTBPS (medium term budget) will be a critical first step to establish the credibility of the reform efforts, followed by steadfast implementation," the IMF said.

In a letter to the IMF signed by the finance minister and the central bank governor, South Africa said it was "open to introducing a debt ceiling in addition to the nominal spending ceiling currently in place" to reduce deficits. (South African rand = $0.0605)

(Reporting by Mfuneko Toyana; Editing by Kevin Liffey and Barbara Lewis)

((mfuneko.toyana@thomsonreuters.com; +27117753153; Reuters Messaging: mfuneko.toyana.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Latest World Markets Videos

Reuters

Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at Reuters.com and via Reuters TV.

Learn More