South Africa gets favorable IMF loan to support BOP against Covid-19

SOUTH AFRICA - Report 31 Jul 2020 by Iraj Abedian

On July 27, 2020, the IMF approved South Africa’s application for emergency financial assistance related to the financing of its Covid-19 pandemic response, under the Rapid Financing Instrument (RFI). The amount approved totals US $4,286.5 million, i.e., 100% of South Africa’s quota for the fund. Finance Minister Tito Mboweni has indicated that the interest rate on the loan is relatively low at 1.1%. The IMF stated that it was South Africa’s urgent balance of payments (BOP) needs that justified securing of the RFI as Covid-19 had amplified the country’s BOP difficulties by adding pressure to the capital account. It indicated that the country’s flexible exchange rate is helping to absorb the pandemic-related shocks, and the low inflation rate is giving the South African Reserve Bank room for movement. However, it noted that the RFI is necessary as it assists not only by filling the pressing BOP needs resulting from current fiscal pressures, but also is​ likely to prevent a possible erosion of the country’s official foreign exchange reserves, while at the same time limiting regional spillovers and catalyzing additional international financial institution (IFI) financing.

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