South Africa should seek funding from the International Monetary Fund given its high debt levels, large capital outflows and a potentially deep recession triggered by the rapidly spreading coronavirus pandemic, a financial industry trade group said.

The Institute of International Finance said it expected South Africa's economy to contract by 2.5% in 2020, but said waning demand, travel restrictions and pandemic-related closures could lead to a deeper recession.

"We believe it is time for South Africa to turn to multilaterals for support," said the group, which was created by 38 banks in leading industrialized countries in response to the debt crisis of the early 1980s. It called South Africa's economic situation "increasingly untenable."

Entering a program with the IMF could "bring much-needed funding and help shore up investor confidence," it said.

The recommendation is not likely to be well received in South Africa, where Finance Minister Tito Mboweni on Sunday said the country would only consider approaching the IMF as a last resort to help fight the virus.

South Africa entered a 21-day lockdown on Friday, with people restricted to their homes and most businesses closed. It has reported more than 1,300 cases of coronavirus and three deaths.

Approaching multilateral institutions for cash, especially the IMF, has long been unpopular with the government, with such a move strongly opposed by the radical faction of the ruling African National Congress and its large trade union allies.

The government has also expressed reservations about approaching the IMF for fiscal support, fearing stringent spending controls the fund would be likely to impose.

But the IIF said South Africa's fiscal policy space was limited even before the shock caused by COVID-19, the disease caused by the coronavirus, and the situation was complicated by persistently low growth and government debt increases that were among the highest in emerging markets.

Higher borrowing costs and the need for greater social spending were likely to expand fiscal deficits in the future, potentially increasing government debt further.

The situation was further complicated by Friday's decision by Moody's rating agency to cut South Africa's debt rating to below investment grade, which could trigger capital outflows of as much as $12 billion, IIF said.

The IIF said the downgrade would also result in rising financing costs and pressure on the South African rand.