The effect of the Covid-19 pandemic on the global economy cannot be overemphasised. A useful discussion to have is on how best we can comprehend the post-pandemic economy and how can it be restructured to sustainably serve humanity’s most vulnerable.
With big business and households tightening their belts, governments are left with the responsibility to stimulate their nations’ economies within their own fiscal constraints.
What we now know for sure is that the International Monetary Fund (IMF) already predicts that the governments of developing countries – both poor and emerging markets – would require extended loan schemes and pardons from them to sustain the stability of their economies at best and/or meet the basic needs of their most vulnerable populations at worst.
By May 2020, the IMF had approved $25m (R438m) worth of emergency loan funds to various African, Asian and Middle East nations to alleviate the socioeconomic effect of the pandemic in those countries. By February 2022, the coverage was much higher with African countries in need of vaccines topping the list. SA is one of those countries listed to have received an IMF loan, which comes at a time when we are at an economic crossroad.
SA is still recovering from a recession (three consecutive quarters of negative growth) in 2017 and another one in 2020. It experienced a decade of fiscal ill-discipline involving excessive and irregular government spending, specifically through state-owned enterprises, which has increased public debt to 65.5% of GDP in 2020/21, and almost bankrupting the state.
The extended unemployment rate is still standing at 38%, alongside a Gini coefficient rating of 0.63, which makes ours one of the most unequal societies in the world with high levels of racialised underdevelopment.
SA's economic model is also monopolised by a few foreign-listed entities that own the country’s key productive assets – which disconnects them from being committed to national development goals such as job creation, domestic investment, infrastructure development and economic transformation.
Therefore, the IMF loan to SA comes at a time where its domestic policy space is fragile, and its economic structure is not anchored on industrial and asset-generating activities. These socioeconomic weaknesses leave room for government to use the IMF loan on sectors that will not generate economic returns.
The president’s recent state of the nation address (Sona) proved the extent of this risk. The government is now pulling back from being the main driver of capital investments in productive industrial sectors and skills. It wants the private sector to do this on its behalf while it gets busy with distributing welfare grants.
The net effect of this approach will be an immediate increase in the inflation rate, the maintenance of the current monopolised economic structure and the acceleration of political instability as a result of increased labour precariousness, income inequalities and indebtedness, and an illicit social reproduction crisis.
An investment in an industrial manufacturing economy that will transfer everyone from welfare to sustainable jobs would have been a far more productive option. This argument is a story for another day but there is one thing that needs to be made clear: the way a government uses an IMF loan will determine if it will remain a colonial subject.
If a government uses an IMF loan to pay salaries of bloated public service managers or buys more German cars for politicians, it is headed for an inflation crisis and colonial eternity because those items do not generate productive returns for the economy to pay back the loan on time.
However, a country that chooses to use the IMF loan to invest in productive farming, railways and ports, modern connectivity and telecommunications, scientific research and vaccine development, and an industrial manufacturing sector – that one has a bright economic future that will generate the necessary growth for recovery and to make loan repayments on time.
This is not new. Countries such as Germany, South Korea and China received IMF loans before and they used them to protect their economies and remain independent.
Today these are world-class economies that are standing at full employment.
Our economic discourse must begin to immerse itself in these hard questions and begin to explore how our country could engage with an IMF loan under these conditions and still thrive.
This requires a critical intelligentsia that can think about the economy from an unorthodox landscape and resist the current easy approach of shifting to the right at every opportunity in search for a comfortable landing at the expense of the working class.
• Dr Mzileni is a research associate in the faculty of humanities at Nelson Mandela University. This column emanates from a 2020 conversation with Prof Chris Malikane
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