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Johannesburg. – South Africa posted a record balance of payments deficit of R15,15 billion in the second quarter of 2013 compared with a R1,15 billion surplus in the first quarter, according to data from the Reserve Bank. The previous record balance of payments, which is the sum of all foreign transactions, including trade and investment flows, was set in the third quarter of 2001, just before the rand reached a record R13,86 to the dollar in December 2001. The bank’s balance of payments is a component of the country’s current account deficit.
Although South Africa has for several years run a current account deficit, it is normally covered by foreign capital inflows, and the balance of payments on a quarterly basis is seldom in the red. That said, the recent fall in the gold price coupled with the repayment of a large government loan in May, which will be reissued in the coming months, means that the figures are somewhat distorted and no cause for immediate concern.
Investec Asset Management portfolio manager Vivienne Taberer said there was an emerging-market focus on balance of payment and current-account deficits.
“There seems to be a theme that those emerging markets with higher deficits are more vulnerable in terms of flows,” she said.
High deficits per se do not lead to currency and portfolio flow vulnerability, but the manner in which they are financed plays a significant role.
“In that department South Africa is unfortunately not one of the biggest destinations for foreign direct investment, which makes us reliant on portfolio flows that are by their nature more volatile and ultimately lead to more volatility in financial markets,” said Ms Taberer.
While economic theory states that the rand should weaken until outflows match inflows, in practice, investment flows dominate and it is not just South Africa that has suffered capital outflows in the June 2013 quarter.
International investors pulled their money from bonds in anticipation of a slowing in the US Federal Reserve easing its monthly US$85 billion bond-buying programme sometime in the future, with most economists viewing September 2013 as the start of the bond-buying tapering.
The three main international credit ratings agencies have cut South Africa’s sovereign credit rating over the past 12 months in part because of its large (5,8 percent of gross domestic product in the first quarter) current account deficit, which makes it reliant on foreign capital inflows.
In 2012, South Africa gained from the inclusion of South African government bonds in the world government bond index, which in 2012 resulted in foreigners buying a net R85,373 billion worth of South African bonds.
Without this capital inflow to finance a large current account deficit, the rand would be much weaker, inflation higher and economic conditions more stressed.
Foreigners were net sellers of R2,116 billion of South African bonds, including repurchase agreements in the week ended July 26 2013, after net purchases of R1,834 billion of local bonds the week before‚ figures from the JSE showed.
So far in 2013‚ foreigners are net buyers of R3,938 billion of local bonds, including repo transactions. – BDlive.
Absa Capital said earlier in 2013 that slower economic growth — delivered in part by the continuing difficult global environment, but also as South Africa struggled for competitiveness — cast a shadow over public finances, employment and equality. – BDlive
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