South Africa’s current-account deficit swelled to 7,8% of gross domestic product (GDP) in the fourth quarter of 2006 on a surge of oil imports and higher service payments, the central bank said on Thursday.
The shortfall widened from a revised 5,7% in the third quarter and 6,1% in the second quarter, bringing the deficit for the year to 6,4% of GDP, the highest yearly gap since 1981.
”In the fourth quarter of 2006, exceptionally strong import demand for crude oil and capital equipment, along with comparatively moderate export growth, resulted in a widening of the deficit on the trade account of the balance of payments,” the South African Reserve Bank said in the March quarterly bulletin.
”The current-account deficit accordingly expanded from R99,9-billion in the third quarter to R143-billion in the fourth quarter, equal to 7,8% of GDP,” it said.
The fourth quarter figure was also the highest quarterly gap in almost three decades.
Robust consumer spending in Africa’s biggest economy has pushed economic growth higher to about 5% but has also helped widen the trade deficit due to an increasing appetite for imported goods.
A relatively strong rand currency in the preceding years, until its depreciation in 2006, also hit exporters, many of whom struggled to compete against cheaper imports.
The growing shortfall on the current account knocked the rand by about 10% against the dollar in 2006 and exports have since started to pick up pace.
A high consumer spending has also added to inflationary pressures, and helped prompt the Reserve Bank to hike its repo rate by 200 basis points to 9% in the second half of 2006.
The central bank said the rise in the deficit in the fourth quarter was largely due to a sharp rise in oil imports after the reopening of refineries following routine maintenance and a widening of the deficit on the trade and services account.
Had the extra increase in oil shipments been excluded the deficit would have been 5,8% of GDP.
Import increase
The value of merchandise imports increased by 16% year-on-year in the fourth quarter against an 11% rise in the value of exports.
Export volumes rose by 9,5% due to higher demand for domestically produced mining products from China and India, although this was tempered by lower manufactured product exports to Europe and the United States.
The value of mineral imports — largely oil — soared. ”Although increases were noted in the value of most import categories, the value of mineral imports rose by an extraordinary 78,5% due to the higher volume of imported crude oil,” the central bank said.
The balance on the trade and service account widened to R77,4-billion in the fourth quarter from R67,3-billion previously on lower investment income receipts and larger net transport payments.
The central bank said the current-account deficit continued to be easily financed by capital inflows, despite a foreign direct investment outflow of R14-billion related to the sales of a foreign interest in a domestic gold mining company.
Net inflows, including unrecorded transactions, rose to R43-billion from R35,4-billion in the third quarter.
Foreign net portfolio investments totalled R31,5-billion in the fourth quarter compared with R23,9-billion previously. — Reuters