Some exceptional items gave rise to the growth in the deficit on the current account of the balance of payments towards the end of last year, but this has been “easily financed by capital inflows”, South African Reserve Bank (SARB) Governor Tito Mboweni told MPs on Tuesday.
South Africa is “in the middle of a construction boom”, Mboweni said, and many companies are “restocking and importing capital goods”.
There has also been a massive growth in oil imports, which he also put down to “restocking”.
Noting remarks earlier by the SARB monetary research unit head, Brian Kahn, that South Africa had been able to “continue to strengthen” its foreign exchange reserves, Mboweni noted that inflows into the bond and share market had been in the order of R13-billion to R14-billion in the last quarter of 2006, “which is helping us to finance the current account”.
Kahn reported that there had been “a substantial increase” in the value of total merchandise imports in the fourth quarter of 2006, which more than offset an increase in the value of merchandise exports.
“Consequently, South Africa’s trade deficit more than doubled from the third quarter to the fourth quarter of 2006. The large trade deficit recorded in the final quarter lifted the deficit for 2006 to R42,5-billion, compared with R7,7-billion recorded in 2005.
“The sizeable trade deficit occurred alongside a significant increase in net service payments to the rest of the world. As a result, the deficit on the current account widened further from the third to the fourth quarter of 2006.
“The current account deficit increased from R100-billion in the third quarter of 2006 to R143-billion in the fourth quarter. As a percentage of gross domestic product, this latter deficit amounted to 7,8%. For 2006 as a whole the deficit came to 6,4% of gross domestic product.”
Mboweni said the current demand pattern “seems to be on the upside” regarding oil.
“We are of the view … that what we saw in quarter four of 2006 was a little bit outside of the norm. We will continue to discuss with our colleagues in the Department of Minerals and Energy and see what the demand patterns are telling us.
“If we are to continue in the same way as quarter four, some major challenges will come ahead. But we thought it was exceptional. We hope we are correct in saying so. But the demand pressures are there clearly. The oil market is difficult to understand because there is no shortage of supply, really, out there. Depending on geopolitical concerns, things change.”
There were such things as tensions between the United Kingdom and Iran, for example. Tensions translated into increases costs on the national accounts of nations, he noted. — I-Net Bridge