Mboweni admits R70 billion IMF loan “could be used for salary payments” for ANC cadres
23 October 2020
Minister of Finance, Tito Mboweni, appears to have abandoned the position he took in his February budget presentation to rationalise the unsustainable public wage bill, and is now willing to use debt to finance salary payments to government employees.
Responding to a parliamentary question on whether any portion of the $4.3 billion loan granted to South Africa by the IMF will be used to pay the salaries of public servants, Mboweni conceded that “the loan receipts (or disbursements) will form part of the National Revenue Fund to be used to support existing government programmes, which could include salary payments.”
This sudden change by Mboweni from his avowed position of prudential public financial management to debt fueled public spending is hardly surprising. It is now public knowledge that his economic reform crusade has been rejected outright by his Cabinet colleagues who have repeatedly shown a willingness to send South Africa over the fiscal cliff through unrestrained spending.
For years now, the consensus among International Financial Institutions (IFIs), rating agencies, economists and even some in Treasury itself is that the country’s public wage bill had become unsustainable and needed to be cut to prevent a budget blow out. Initially a strong proponent of this position, Mboweni now seems intent on appeasing the trade unions by acceding to their demands for additional spending on the public wage bill.
By admitting that the IMF loan could be used to pay salaries, Mboweni has reneged on the spending commitments he made in his Letter of Intent to obtain financial support under the IMF’s emergency financing instrument. The LOI committed government to use IMF emergency assistance to support health and frontline services, solve the balance of payments problems caused by the pandemic, protect the vulnerable, support economic reform, drive job creation and stabilise public debt.
As Mboweni gets ready to present the Medium Term Budget Policy statement in a week’s time, his failure to hold the line and defend the public purse from marauding political interests in his own party will have far reaching consequences on South Africa’s long term fiscal stability. The reality is that the country’s unprecedented high budget deficit and debt levels are only set to get worse as a result of an unending appetite for more debt.
The DA has already written to the IMF to register our strong objection to Mboweni’s intention to spend another R10 billion on bailing out South African Airways. In our next correspondence with the IMF, we will similarly inform the Fund that Mboweni has now decided to abuse the $4.3 billion loan to pay salary increases for ANC cadres.
NATIONAL ASSEMBLY
QUESTION FOR WRITTEN REPLY
QUESTION NUMBER: 2208 [NW2777E]
2208. Dr L A Schreiber (DA) to ask the Minister of Finance
Whether any portion of the $4,3 billion loan granted to the Republic by the International Monetary Fund (IMF) will be used to pay the salaries of public servants; if not, what mechanisms have been put in place to ensure that no portion of the IMF loan will fund the salaries of the public servants; if so, what are the relevant details?
NW2777E
REPLY:
The loan of $4.3 billion loan granted to the Republic by the International Monetary Fund (IMF) will not be earmarked specifically for the payment of salaries. The loan is a special facility created for member countries experiencing emergencies. It is called a Rapid Financing Instrument (RFI), and does not bear conditionalities, nor does it require the implementation of an IMF structural programme. Countries, however, receiving IMF emergency financing have committed to transparently utilising and reporting spending. Thus, the loan receipts (or disbursements) will form part of the National Revenue Fund to be used to support existing government programmes, which could include salary payments.
Access to the RFI was specifically expanded to help countries deal with the balance of payments (BOP) problems arising from the COVID-19 pandemic. The loan provides a low-interest opportunity for South Africa to provide counter-cyclical support to the economy and fund COVID-19 related emergency support. In other words, it mitigated the need for massive spending cuts in response to the dramatic revenue shortfalls of government, and avoided an explosion in the financing needs brought on by high-cost borrowings.
The reporting on the loan’s use will form part of the general responsibility of government of publishing all information related to COVID-19-related support programmes, including procurement.
ENDS
Issued by Leon Schreiber, DA Shadow Minister for Public Service and Administration, 23 October 2020
