South Africa’s foreign exchange and gold reserves should be enough to cover at least six months’ imports if higher growth is to be sustained, organised business said on Wednesday.
Nedlac’s business convener, Raymond Parsons, was speaking at the launch of the World Bank’s 2005 Global Development Report in Midrand.
”The target for the official reserves-imports ratio as an emerging market should ideally, in my view, be not less than at least 50% — in other words, to cover a minimum of six months’ imports,” Parsons said.
South Africa’s current ratio is about 32%, or three to four months’ imports.
Parsons was responding to World Bank warnings that emerging markets with large reserves invested in dollar-associated assets face capital losses if the dollar depreciates.
He suggested 50% is the optimum level of reserves required for South Africa to reach its ambitious socio-economic goals.
These include halving unemployment and poverty, reaching a growth rate of 7% from the current level of between 3% and 4%, and raising total fixed investment to about 25% of gross domestic product from the present 17%.
South Africa’s foreign-exchange reserves — low by emerging market standards — currently stand at $13,9-billion, as opposed to China’s $609-billion, Parsons said, quoting figures from The Economist magazine.
Increasing reserves, Parsons suggested, would help strengthen the rand and underpin future economic growth. It would also help absorb the shock of economic disturbances triggered by events outside the country.
”The benefits [of reserve accumulation] have to be looked at against the costs,” cautioned Jeff Lewis, a World Bank economist and lead author of the report.
In his assessment of the global economy, Lewis said the next three years will see a slowing in growth, following last year’s strong surge.
While developing countries grew by 6,6% in 2004, sub-Saharan African grew by 3,8%.
The latter’s growth was ”still high enough to be generating growth in per-capita income”, Lewis said.
”[2004] was an exceptionally strong year for global development, particularly in developing countries,” he said.
The report attributed the slowing down in the current global economy to several factors, including rising interest rates, the effects of the 25% real effective appreciation of the euro and the increase in oil prices over the past year and a half.
”The oil shock is really a demand shock. World growth and therefore demand for energy has been growing much faster than anticipated,” Lewis said.
Oil prices will ease to more moderate levels over the second half of 2005, the World Bank forecast.
The report forecasts that global growth will slow to 3,1% in 2005.
A reduction in demand for developing-country exports is expected to slow growth among them to 5,7% in 2005, which remains above recent growth trends.
Africa’s growth is expected to reach 4,1% in 2005 and 4% in 2006, remaining behind the performance of most other developing regions. — Sapa