South Africa’s current account increased to 7,2% of gross domestic product in 2007 and will rise to 8% by 2010, as imports soar and export growth remains sluggish, the Treasury said on Wednesday.
In its 2008 budget review, the Treasury said the current account had shifted from a surplus of R10-billion in 2002 to a deficit of R143-billion in 2007.
That was due to a relatively low rate of savings, requiring capital from abroad to fund growing investments needs.
The government had in October forecast a current account gap of 6,7% in 2007 from 6,5% the previous year, and a projected ceiling of 7,8% for 2010.
On Wednesday, the Treasury said increased imports of capital equipment and rising demand which had not been adequately met by domestic supply had exerted pressure on the account.
“Export growth remains sluggish and imports have been driven by high oil prices and strong investment.,” the Treasury said.
“This makes the economy more vulnerable to external shocks, because foreign investment may wane during periods of greater global economic volatility,” it said.
Sharp increases in commodity prices had however benefited the terms of trade, raised national income and boosted tax revenues.
“The outlook for commodity prices remains positive, but the current account deficit is expected to remain large, reaching 8 percent of GDP in 2010, driven in part by rising fixed investment,” said Treasury.
Capacity constraints in the electricity sector would also worsen the trade deficit over the short-term by restricting exports, raising demand for imported fuel to power generators and supporting investment in energy-efficient technologies.
“Given the high import intensity of capital equipment, it is essential to raise exports to pay for higher capital investment,” the national Treasury added.
Pressure on the current account would over time be moderated by slower growth in consumptive spending and increased exports due to a more competitive real exchange rate. – Reuters
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