Govt U-turns to apply for N$4.5bn IMF loan
29 July 2020 | Economics
After stating to Namibian Sun in April that it would avoid the International Monetary Fund (IMF) for financial aid, government yesterday confirmed it has approached that institution for a loan of N$4.5 billion to help finance its record deficit of nearly N$21.4 billion in the current fiscal year.
Finance minister Iipumbu Shiimi yesterday confirmed that the government last week submitted a special drawing rights (SDR) 192 million application to the IMF's rapid financing instrument (RFI) to help it address the impact of the Covid-19 pandemic on Namibia.
Shiimi yesterday told Namibian Sun that government would assess the terms and conditions of the loan once the IMF responds to see if it is favourable.
“We hope we get what we asked for,” he said.
In April, the finance ministry said that in a bid to avoid further heightening public debt, Namibia had so far resisted the temptation to approach the International Monetary Fund (IMF) to finance the national budget or the war against the coronavirus.
While tabling his N$72.8 billion budget, which included N$8.4 billion earmarked for the payment of interest on government loans, finance minister Ipumbu Shiimi revealed that “taking into account the total financing requirements”, government debt stock would to rise to N$117.5 billion, corresponding to 68.7% of gross domestic product (GDP), from 54.8% estimated in 2019/20.
The IMF, notoriously known for removing the fiscal autonomy of countries it lends to, recently offered a US$50 billion war chest to help countries fight the Covid-19 pandemic.
South Africa was on Monday granted a US$4.3 billion loan from the IMF, the single biggest allocation of emergency financing from the fund yet for the pandemic-hit country.
The IMF approved the loan for President Cyril Ramaphosa's government in order to address “the challenging health situation and severe economic impact of the Covid-19 shock” on Africa's most industrialised economy.
According to the IMF's website, the RFI provides rapid and low-access financial assistance to member countries facing an urgent balance of payments need, without the need to have a full-fledged programme in place.
“It can provide support to meet a broad range of urgent needs, including those arising from commodity price shocks, natural disasters, conflict and post-conflict situations, and emergencies resulting from fragility,” the fund states.
SDR is an international reserve asset created by the IMF to supplement its member countries' official reserves. The value of the SDR is based on a basket of five currencies -the US dollar, euro, Chinese yuan, Japanese yen and the British pound.
The SDR value in terms of the US dollar is determined daily based on spot exchange rates. According to the IMF's website, the SDR yesterday afternoon equalled nearly US$1.41. A loan of SDR192 million therefore translates to nearly US$271 million which, at yesterday's exchange rate, is around N$4.5 billion.
In his maiden budget tabled towards the end of May, Shiimi made provision for Covid-19 related borrowing of N$3.23 billion.
According to the IMF's website, Namibia has a quota of about SDR191 million. The country currently has no loans at the fund.