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The SA Daily 07 February 2019

SA share of foreign reserves less than most EM

  • SA gross reserves were US$50.83bn in January (US$51.64bn in December), partly due to foreign-exchange swaps and payments made on behalf of the government. The fall in reserves was partially offset by the USD gold price. The reserve bank’s (SARB) international liquidity position rose to US$43.59bn in January (US$43.1bn in December), partly due to the rise in forward positions and changes in the foreign-currency deposits received.
  • Q3:18 gross reserves equated to 14.4% of GDP (14.3% in Q2); the SARB’s international liquidity position was 12.1% of GDP in Q3 (12.0% in Q2). Gross foreign reserves are now estimated at 62% of SA foreign-currency-denominated debt.
  • The import-cover ratio (the number of months current levels of imports can be sustained should all other inflows and outflows cease) was 4.7 months in Q3 (4.9 in Q2) but still above the historical average as well as above the critical level of three months of imports. Therefore, SA still seems relatively safe from external shocks.
  • However, SA’s foreign reserve share is still less than other emerging markets, at only 2.6% of total EM foreign reserves (of a total US$2tr). SA’s poor growth and twin deficits are also less promising than most other emerging markets. This makes the rand more vulnerable than other EM currencies due to state-owned enterprise fiscal risk, policy and political flux, and poor confidence levels.

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