National Treasury’s application for a $1 billion loan from the New Development Bank to fight the impact of the Covid-19 pandemic has largely been welcomed, but economists urged the department to cast its net wider in search of much more funding.
South Africa could also do well to consider that the International Monetary Fund (IMF) because the country needed more funding to deal with the crisis, Mike Schussler, economist at Economists.co.za, has said.
“I think it’s a sensible thing to do.”
The New Development Bank was founded by the member nations of Brics in 2014.
The country could get far more funds from the Washington-based IMF than it could from the New Development Bank, Schussler says, before admitting that the conditions and scrutiny that come with an IMF loan might be less appealing.
“The New Development Bank is still a small institution. It’s good that we’re getting help but there is access to a lot of money from other sources. I imagine government does not like that because IMF watches over your shoulder.”
Business Day first reported that Treasury was seeking the loan on Monday.
Speaking to Fin24, Treasury said government would keep its options open when it came to sources of funding.
Government “…is exploring all funding avenues to finance all Covid-19 related programmes and measures aimed at addressing the pandemic. The funding avenues will not be limited locally but will include exploring all global partners,” the department said in an email.
National Treasury wouldn’t comment on the terms and conditions of the loan and whether they had been impacted by recent credit rating downgrades from both Moody’s Investor Services and Fitch Ratings.
Despite the downgrades and concerns of a rise in the country’s debt, economists feel the loan is justifiable and critical to the economy. SA’s debt to GDP ratio is currently sitting around 66%, according to Trading Economics.
Efficient Group economist Francois Stofberg said debt is not wasted expenditure if you spend it on fighting Covid-19. He said short term debt could be lifted by 3.5%, but in the long-term South Africa can improve productivity and would be able to repay that debt.
“Not all debt is bad. I think what we have been using our debt for until recently has been a problem, because we spent on salaries and the like. If you make debt and spend it on infrastructure, quality education and quality healthcare, then you can pay it back.”
South Africa has battled to secure medical supplies and equipment to combat Covid-19 because of recent trade restrictions in China, a competitive export environment and the depreciation of the Rand.