Funding activities

IMF bailout hopes for South Africa crumble as Zuma loyalists resist

President Cyril Ramaphosa during a breakfast briefing ahead of the World Economic Forum on January 18, 2018 in Johannesburg, South Africa.

Moeletsi Mabe | Sunday hours | Gallo Pictures | Getty Images

South Africa now has less than a 33% chance of getting an IMF (International Monetary Fund) bailout this year, new research projects.

After receiving $4.3 billion in emergency funding from the IMF so far in 2020, the momentum for a much-vaunted, far-reaching bailout appears to have slowed in recent weeks.

The country is embarking on a ambitious program of economic reformshoping to stabilize a growing debt profile while attempting to spur an economic recovery from the sharp decline caused by the coronavirus pandemic.

“Hardliners in the ANC and allies of former President Jacob Zuma remain strongly opposed to an IMF deal,” said David Wille, senior financial sector risk analyst at Verisk Maplecroft. The risk consultancy, in its latest assessment earlier this week, attributed less than a 33% chance of an IMF bailout to South Africa by the end of the year.

“However, their influence is likely to wane in the coming months as an ongoing anti-corruption campaign targeting prominent Zuma associates, including current ANC Secretary General Elias Ace Magashule, is getting bigger.”

Protesters for the impeachment of former South African President Jacob Zuma in Johannesburg, South Africa, February 5, 2018.

Marco Longari | AFP | Getty Images

Zuma has been summoned to appear before a South African corruption inquiry from November 16-20. The probe was set up two years ago to investigate allegations that during his tenure, Zuma allowed his associates, the Gupta family, to plunder state resources.

Both sides have vehemently denied any wrongdoing, but Zuma’s nine-year term as president ended in February 2018 when he was ousted by his ruling ANC (African National Congress) party. His current successor President Cyril Ramaphosahas since sought to restore investor confidence and transform the image of his party.

Finance Minister Tito Mboweni has long stressed the need to strengthen South Africa’s economy in the aftermath of the pandemic. GDP (gross domestic product) is expected to contract by 8% in 2020, according to the IMF.

“This includes a new drive to confront powerful unions over unsustainable civil service wages that eat up 41% of government revenue,” Wille said in the report earlier this week.

“These are signs that President Ramaphosa is keeping the door open for a possible agreement with the IMF to fund the country’s pandemic recovery efforts.”

Wille said while weaker consensus forecasts and the limited time remaining to strike a deal within Verisk’s forecast horizon make a deal unlikely this year, South Africa still has room to secure funding. additional funding, including from the IMF, in 2021 and beyond.

On Tuesday, Ramaphosa hosted a roundtable showcasing infrastructure projects in a bid to attract private sector interest and funding of around 210 billion South African rand ($13.3 billion). The government aims to increase investment to around 23% of GDP by 2024 from its current figure of just over 16%, with the private sector accounting for 15% of GDP of this target.

Ramaphosa’s Economic Reconstruction and Recovery Plan highlights four major priority interventions aimed at strengthening the country’s economy. These include the deployment of infrastructure, the expansion of energy capacity, the direct stimulation of employment and the stimulation of industrial growth. Mboweni delivered a budget update on October 28, outlining the country’s troubling fiscal situation and plans to right the ship.

“A less ambitious budget trajectory (compared to the ‘active’ scenario proposed in June) but more credible (because it is more achievable given the announced budget cuts) has been communicated, which leaves little room for error and will oblige the Treasury to walk a tightrope in order to avoid a sovereign credit crisis,” Jacques Nel, NKC’s head of African economics for macro-economics, said on Wednesday.

“Budget cuts mean service delivery will undoubtedly suffer next year and there is little money for recurrent expenditure, let alone public investment.”