Gov't mulls IMF budget bailout
Mbongeni Mguni | Friday August 7, 2020 14:17
About 40 African states, including nearly all in Southern Africa, have applied for special coronavirus (COVID-19) funds from the IMF. Officials at the institute told BusinessWeek that the applications thus far totalled $16 billion, with about $14.3 billion approved.
South Africa finalised a $4.3 billion loan last week, while on July 30, eSwatini and Lesotho secured $110 million and $49.1 million respectively. Mozambique secured $309 million in April, while Namibia has applied for $273 million.
The size of the IMF loans are also based on Special Drawing Rights quotas from the IMF, of which Botswana has a healthy balance. BusinessWeek estimates, from IMF figures, suggest Botswana could borrow $266 million at 100% of its quota. The IMF allows members to borrow up to 145% of their quota, meaning Botswana could seek nearly $386 million in funding or nearly P4.7 billion.
This week, Finance and Economic Development minister, Thapelo Matsheka said no final decision had been taken on whether to approach the external lenders. “We have not firmed our position as yet on the borrowing,” he told BusinessWeek. “We are looking at options regarding COVID[-19] funds by IMF and World Bank with budget support, but nothing is conclusive yet.”
According to the last estimates made by Matsheka, from an initial deficit of P5.2bn, government now expects a shortfall of P10.8bn for 2020-2021. Revenues have been revised downwards from P62.4bn to P48.8bn while expenditure has been shaved to P59.6bn from P67.2bn.
In brief remarks made in Parliament on Tuesday, Matsheka hinted that the numbers for 2020-2021 had been revised upwards, but did not provide any details. The initial economic contraction of 13.1% for 2020 was recently revised to a contraction of 8.9 percent.
Government has traditionally been wary of external borrowing, preferring to initially dip into its reserves, or raise capital domestically. Much of the fear stems from the ‘original sin’ a term coined by economists to roughly describe a situation where countries find themselves stuck with high foreign debt obligations.
With the IMF loans, politicians have also cautioned that while interest rates are as low as zero for the COVID-19 packages, the institute generally enforces tough conditions which may compromise countries’ ability to independently conduct their own fiscal and monetary policy.
IMF spokesperson, Meera Louis told BusinessWeek the focus of the funding was to help countries out of the crisis created by the pandemic.
“Our goal is to provide countries with the financial support they need in times of economic hardship,” she said in a written response.
“At the same time, we put in place checks and balances to help support successful reforms, while also safeguarding the fund’s resources, so we can continue providing support in the future.
“Although our emergency lending does not involve ex-post monitoring, countries have committed to ensure accurate accounting, frequent and timely reporting, and adopting procedures to ensure ex-post evaluation.”
She added: “The key is to balance efficient spending with appropriate controls and accountability mechanisms that are tailored to country circumstances.”
Analysts point out that unlike other troubled African economies, Botswana would have little trouble adhering to the IMF’s accounting, transparency and reporting protocols.
The institute has, however, frequently expressed concern about the size of the public service and would be expected to ensure any disbursed funds do not find their way to supporting the civil service wage bill.