The loan is expected to meet the urgent balance of payment (BOP) needs stemming from the outbreak of the COVID-19 pandemic, the IMF said in a statement after the IMF Executive Board approved the loan under the Rapid Financing Instrument (RFI).
The pandemic is evolving in South Africa at a challenging time when economic activity, hampered by severe structural constraints to growth, has weakened over the last decade despite significant government spending, resulting in high unemployment, poverty, and income inequality, the IMF said.
Like in other emerging economies, South Africa's financial market volatility has increased during the pandemic, but the financial system is showing resilience, it said.
"South Africa's economy has been severely hit by the COVID-19 crisis, reporting the highest number of cases in sub-Saharan Africa," said Geoffrey Okamoto, IMF's first deputy managing director.
A deep economic recession is unfolding in the country as the decline in domestic activity and disruptions in the global supply chain resulting from the COVID-19 shock have added to a pre-existing situation of structural constraints, subdued growth, and deteriorating social outcomes, Okamoto said.
"The emergency financing under the RFI will help fill the urgent BOP needs that emerged as a result of the pandemic and thus contain the economic disruption and its regional spillovers," said Okamoto.
The authorities' commitment to transparently monitor and report all use of emergency funds is crucial to ensuring COVID-19-related spending reaches the targeted objectives, he said.
"There is a pressing need to strengthen economic fundamentals and ensure debt sustainability by carrying out fiscal consolidation, improving the governance and operations of SOEs (state-owned enterprises), and implementing other growth-enhancing structural reforms," said Okamoto.
South Africa has the fifth highest number of confirmed coronavirus cases in the world, accounting for half of the total in Africa. As of Monday, the country recorded 452,529 cases with 7,067 deaths.