South Africa’s recession hit economy finds its self in a Covid-19 and junk status double whammy that will take years to get out of
The current 21-day lockdown, aimed at reducing the virus will further hamper economic growth and over the weekend Finance Minister Tito Mboweni even mooted the idea of approaching the IMF and the World Bank for funding to relieve pressure on the ailing economy.
Speaking a day after South Africa was downgraded by ratings agency Moody’s to junk status, Finance Minister Tito Mboweni said he will consider approaching financial institutions such as the IMF, World Bank and the New Development Bank to help fund health interventions as the country continues to battle the Covid-19 crisis.
Developing countries are set to be the most affected by the pandemic, according to a statement by the United Nations Development Programme, income losses could top $220 billion and nearly half of all jobs in Africa could be lost, resulting in a devastating socio-economic crisis.
In light of the stark economic reality facing South Africa, Mboweni said he will not take an ideological stance about asking for assistance from international finance institutions adding that while the country might not need immediate funding, he’s keeping the option in his “back pocket.”
In response to the escalating Covid-19 crisis the IMF announced it stands ready to “deploy it’s $1 trillion lending capacity,” and will assist distressed countries with emergency finance. Nearly 80 countries have expressed interest.
South Africa may very well need that financing at some point because the crisis caused by the Covid-19 pandemic will hit our already embattled economy hard and could see up to 1 million people lose their jobs, adding to the already sky high 29 % unemployment rate.
Moody’s downgrade of South Africa’s sovereign credit rating to junk status, coupled with a paralysing 21-day lockdown means the economy could be headed for a freefall, with economists predicting a GDP contraction between 4% to 6%.