South Africa is negotiating a $4.2 billion loan with the International Monetary Fund (IMF). President Cyril Ramaphosa intends to use the relief package to cushion the economy battered by COVID19 and prolonged lockdown measures.
South African Revenue Service (SARS) expects to lose about $17 billion (R285 billion) in tax revenues due to the extended lockdown. On June 1, South Africa entered level 3 lockdown that saw reopening of public transport, sale of alcohol, factories, mines, and schools.
In January, the IMF said that South Africa’s fiscal deficits have been persistently large due to continued high expenditure despite weakening revenue performance and state-owned enterprise (SOE) bailouts. At the time, the IMF predicted the government deficit to reach 6.5 percent of GDP in FY19/20 resulting in significant debt accumulation—projected to exceed 60 percent of GDP in FY19/20—and leaving South Africa with no fiscal space.
In addition, SARS announced a budget deficit of R52.1 billion in April due to business closure and tax holidays giving more time to make tax payments. SARS data on trade statistics for April 2020 indicate a trade deficit of R35.02 billion.
In March, Statistics South Africa revealed that the South African economy had slid into a recession following a dismal performance in 2019. Agriculture was the main drag on growth in 2019 decreasing by 6.9%, closely followed by construction, mining (1.9%), and manufacturing.
The IMF says that as of June 4 it had provided emergency financing to 66 countries totaling about $23.5 billion.
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