The International Monetary Fund and its collaboration with the World Bank to fight against COVID-19.

By Sharon Mnisi 010 592 2321
 
The International Monetary Fund
 
The International Monetary Fund (IMF) was created in 1945, it is an organisation comprising of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. 1
 
The main purpose of the International Monetary Fund is to ensure the stability of the international monetary system, which is the system of exchange rates and international payments that enables nations to transact with each other. 2
 
Collaboration between the International Monetary Fund and the World Bank to fight against COVID-19
 
The IMF and the World Bank are institutions of the United Nations. 3
 
These two institutions have a similar goal of raising living standards in their member countries, for instance the IMF focusing on macroeconomic and financial stability concerns and the World Bank concentrating on long-term economic development and poverty reduction. 4
 
The World Bank Group and International Monetary Fund assembled African leaders, bilateral partners, and multilateral institutions for effective responses on COVID-19 in the African region. 5
 
“President Cyril Ramaphosa of South Africa, United Nations Secretary General Antonio Guterres, Director General of the WHO Dr. Tedros Adhanom Ghebreyesus, Africa Union Commission Chairperson Moussa Faki Mahamat, and officials of individual countries outlined their policy plans for effective use of resources, multilateral organisations including the United Nations pledged their continued support, and bilateral partners reemphasised their commitment to a debt standstill beginning May 1, 2020.” This is a result of requests from President Malpass of the World Bank Group, Georgieva Managing Director of the International Monetary Fund, and other partners for creditors to suspend debt repayments in order to provide much needed assistance to the poorest countries. 6
 

“Together, official creditors have mobilised up to $57 billion for Africa in 2020 alone including upwards of $18 billion from the IMF and the World Bank each to provide front-line health services, support the poor and vulnerable, and keep economies afloat in the face of the worst global economic downturn since the 1930s. Private creditor support this year could amount to an estimated $13 billion. This is an important start, but the continent needs an estimated $114 billion in 2020 in its fight against COVID-19, leaving a financing gap of around $44 billion.

According to the President of the World Bank Group, David Malpass “the World Bank Group is putting its full capacity to work for people across Africa as they fight this pandemic. The world has rarely seen a crisis of this magnitude, and no one can stand on the sidelines; we cannot leave any country behind in our response. We have provided emergency support to 30 countries across Africa so far, with more to come, and will continue to advocate for debt relief and increased resources, especially for those countries hardest hit by COVID-19.” 7 
 
As a way of assisting countries during this COVID-19 pandemic the World Bank Group is contributing up to $160 billion in financial support for the next 15 months, $55 billion of which will be for African countries. This will support over countries to protect the poor and vulnerable, support businesses, and reinforce economic recovery. 8
 
Relief package to help nations during this COVID-19 pandemic
The IMF has taken exceptional measures in just these two months by providing relief packages to assist the poorest countries affected by this pandemic. 9
 
The package of actions that the International Monetary and Financial Committee permitted include: 10
 
1. “Doubling the IMF’s emergency, rapid-disbursing capacity to meet expected demand of about $100 billion.
 
2. Reforming our Catastrophe Containment and Relief Trust, to help 29 of our poorest and most vulnerable members of which 23 are in Africa through rapid debt-service relief, and we are working with donors to increase our debt-relief resources by $1.4 billion. Thanks to the generosity of the United Kingdom, Japan, Germany, the Netherlands, Singapore, and China, we are able to provide immediate relief to our poorest members.
 
3. Aiming to triple our concessional funding via our Poverty Reduction and Growth Trust for the most vulnerable countries. We are seeking $17 billion in new loan resources and, in this respect, I am heartened by pledges from Japan, France, United Kingdom, Canada, and Australia promising commitments totaling $11.7 billion, taking us to about 70 percent of the resources needed towards this goal.
 
4. Supporting a suspension of official bilateral debt repayments for the poorest countries through end 2020 a ground-breaking accord among G20 countries. This is worth about $12 billion to nations most in need. And calling for private sector creditors to participate on comparable terms which could add a further $8 billion of relief.
 
5. Establishing a new short-term liquidity line that can help countries strengthen economic stability and confidence.”
 
South Africa’s coronavirus relief budget
 
On April 21 2020 President Cyril Ramaphosa made an announcement that the South African government will make an additional R500bn equal to about 10% of the country’s annual GDP available to support the fight against Covid-19. 11
 
Of which R130 billion of the amount will be supported additional funds will come from reprioritising South Africa’s current budget and the rest will come from the International Monetary Fund and the New Development Bank. 12
 
President Cyril Ramaphosa reassured the ANC leaders that the “IMF loan to his government would come with no strings attached.” 13
 
Of which 20bn will be strictly directed at assisting the government’s health response to the virus, particularly managing the expected spike in the number of cases in the next coming months. 14
 
The measures announced by the President include the following: 15
 
1. “A special coronavirus grant of R350 per month will be paid to the unemployed for the next six months;
 
2. Grant beneficiaries will receive an extra R250 for the next three months;
 
3. An additional R200 billion loan guarantee scheme, which will assist enterprises with additional costs, such as salaries and paying suppliers. In the initial phase, companies with turnover under R300 million a year will qualify to participate in this scheme. The scheme is being run in partnership with major banks, National Treasury and SARB. The scheme will launch before the end of the month;
 
4. The threshold for tax deferrals will be R100 million a year;
5. R40 billion has been set aside for income support through UIF for employees whose employers unable to pay wages;
 
6. R100 billion has been set aside for the creation of jobs.”
The IMF is providing emergency funding to fight against the virus and Governments globally have taken unprecedented action to fight the virus in order to save lives, to provide protection for their societies and economies. 16
 
President Cyril Ramaphosa stated that, “This pandemic has already had a devastating impact on Africa and its effects will deepen as the rate of infection rises. It is a setback for the progress we have made to eradicate poverty, inequality and underdevelopment”. 17
 
As a result of the dire impact of this pandemic on the country’s economy, a phased approach will be taken to reopen the economy. 18
 
South Africa is in the second phase of a three-phase economic response to the coronavirus pandemic, this phase is where the need to address the decline in supply and demand, and protect jobs, hence the government is providing a support package of R500 billion. 19

Footnotes:

International Monetary Fund https://www.imf.org/en/About. 2. International Monetary Fund https://www.imf.org/en/About. 3. The IMF and the World Bank 2020 4. The IMF and the World Bank 2020 5. World Bank Group and IMF mobilize partners in the fight against COVID-19 in Africa 2020 16. World Bank Group and IMF mobilize partners in the fight against COVID-19 in Africa 2020 1.7. World Bank Group and IMF mobilize partners in the fight against COVID-19 in Africa 2020 8. World Bank Group and IMF mobilize partners in the fight against COVID-19 in Africa 2020 1. 9. Georgieva K “A Global Crisis like no other needs a Global Response like no other” 2020 1. 10. Georgieva K “A Global Crisis like no other needs a Global Response like no other” 2020 1.11. Writer S “Ramaphosa announces R500 billion support package as South Africa gets ready to slowly re-open its economy” 2020 1. 12. Van der Merwe M “The 7 biggest interventions in Ramaphosa’s R500bn coronavirus support package”2020 1. 13. Mokone T “IMF, World Bank to help SA fund coronavirus relief budget” 2020 1. 14. Mokone T “IMF, World Bank to help SA fund coronavirus relief budget” 2020 1. 15. Writer S “Ramaphosa announces R500 billion support package as South Africa gets ready to slowly re-open its economy” 2020 1.16. Georgieva K “A Global Crisis like no other needs a Global Response like no other” 2020 1. 17. World Bank Group and IMF mobilize partners in the fight against COVID-19 in Africa 2020 1. 18. CNBC Africa “COVID-19: SA announces R500bn stimulus package; about 10% of GDP” 2020 1. 19. Writer S “Ramaphosa announces R500 billion support package as South Africa gets ready to slowly re-open its economy” 2020 1.

Disclaimer: This Article does not constitute, nor should be construed as, the giving of legal advice. It is recommended that one of our attorneys are contacted for separate and proper advice 010 592 2321

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