Sars has defended the timing of its decision to include trade with neighbouring countries in its calculation of international trade statistics. (M&G)
The South African Revenue Service (Sars) defended the timing of its decision to include trade with neighbouring countries in its calculation of the country's international trade statistics on Friday – a move that has been questioned by financial analysts.
The inclusion of trade with Botswana, Lesotho, Namibia and Swaziland (BLNS) – which form part of the of the Southern African Customs Union – will have a substantial impact on South Africa's official trade balance and potentially its balance of payments, notably its current account – a broad measure of transactions the country does with the rest of the world. The impact on the current account, however, is expected to be less dramatic.
South Africa's total trade deficit for 2012 was R116.9-billion, Sars said in a statement, but had the BLNS trade data been included, the deficit would have been a much reduced R34.6-billion.
In 2011, had the BLNS trade figures been included South Africa's trade balance would have moved from a deficit of R24.6-billion to a surplus of R44-billion.
Although he welcomed the inclusion of the data, Nomura analyst Peter Attard Montalto flagged the timing of the decision as odd.
"We are very suspicious of the timing now – when government is very annoyed at its inclusion as a stressed country and a 'taper target’”, he said in a research note.
“It [is] a particular surprise its happened without any consultation or working papers or even mention by policy makers that actually trade numbers were better than they look.”
But the process has and will continue to be a transparent one, according to Sars
International trade statistics
The trade between South Africa and what are known as the BLNS countries, has always been recorded but had for historical reasons been kept separate from official international trade statistics, group executive of operations finance and debt management at Sars John Cruickshank told the Mail & Guardian.
"We are of the view that it represents real economic activity," said Sars spokesperson Adrian Lackay.
The trade balance is one of the elements that makes South Africa's current account, which has recorded significant deficits in recent months – coming in as high as 6.5% of gross domestic product in the second quarter of 2013. The deficit is largely financed through the inflow of foreign capital, which has been in steady supply as a result of the expansive monetary policies in the developed world designed to boost their flagging economies. One such programme is quantitative easing, the purchase of $80-billion in assets by the US Federal Reserve.
But reliance on foreign portfolio inflows has also left the currency vulnerable to sudden changes in the direction of these flows. As the Fed has begun to mull the idea of tapering its quantitative easing programmes, emerging market currencies have experienced great volatility. But emerging markets with large current account deficits, including South Africa, have been the hardest hit. They were loosely termed termed the "fragile five" by investment bank Morgan Stanley and include South Africa, India, Indonesia, Turkey and Brazil. The current account deficit alongside South Africa's budget deficit, at over 4% of gross domestic product, has helped fuel concerns.
The decision to review the data however was not in response to these broader concerns over South Africa's economic performance according to Sars.
The examination of the trade data had been conducted over the last year, in line with its customs modernisation programme, said Lackay.
SA's trade figures
The modernisation of its systems has enabled electronic capturing of trade data that was previously done manually. As a result, Sars was "much more confident of the accuracy of the data", said Lackay.
Trade data is released at the end of each month and the announcement about the revision was made ahead of the next release to signal the changes that will be included he noted. The announcement was made after reaching consensus with the South African Reserve Bank and the treasury.
The government would also approach the United Nations to review the treatment of South Africa's trade figures, he added, opening up the process to international scrutiny to ensure the accuracy of the figures.
Extent of the impact
The extent of the impact this will have on the current account balance remains to be seen, but it is not expected to be extreme.
The South African Reserve Bank said in a statement that it has always included its own estimates, of the trade between South Africa and the other Southern African Customs Union countries in its compilation of South Africa's overall imports and exports.
"Therefore, the impact on the balance of payments will be less than the amounts of BLNS exports and imports now disseminated by Sars," it said.
It nevertheless welcomed the "valuable additions to the building-block data used to compile South Africa's balance of payments", it said, as this would result in improved measurement.
In light of the Reserve Bank's comments, Attard Montalto said any changes were likely to be small in nature.
"Even if there are revisions South Africa is unlikely to fall out of the high deficit, vulnerable countries. A 5% GDP deficit as opposed to a 6% deficit is still bad," he said.
Investec economist Annabel Bishop noted that credit ratings agencies have expressed "grave concern" over South Africa's twin deficits.
Any narrowing in the current account deficit historically will be of benefit as South Africa is at risk of a possible downgrade from agencies such Standard and Poor's.
However, even with the improved trade and current account deficits, she said, South Africa is likely to remain a "twin deficit country".