The SA Daily
02 December 2019
SA twin deficits in poor shape
Shireen Darmalingam
- South Africa’s twin deficits of current account and budget both compare poorly amongst emerging market economies — because SA’s expanding fiscal deficit and the attendant high debt repayments will keep SA vulnerable to external pressures. Per the recent MTBPS, SA’s fiscal framework has weakened due to subdued economic growth and reduced government revenue. The main budget deficit is expected at 6.2% of GDP in the current year, then widening to 6.8% of GDP in FY20/21; it is then expected to compress to 6.2% of GDP by FY22/23. Moody’s and S&P have both called for government to commit to the fiscal consolidation recommended by the MTBPS. If not, the sovereign will face further downgrades, in the wake of recent changes in the outlook from stable to negative and possible expulsion from the World Government Bond Index (WGBI).
- We are still nevertheless somewhat more optimistic than the consensus about the prognosis for the SA trade and current accounts. Consensus foresees a current account deficit of 3% of GDP in Q3:19, after 4% of GDP in Q2:19. We expect a deficit of 3.2% of GDP in 2019 after the deficit of 3.6% in 2018. The current account deficit however is likely to widen to 3.6% of GDP in 2020, which, together with the growing fiscal deficit, remains an impediment to future GDP growth.
- In October, the SA trade balance continued in surplus, albeit less, at R3.1bn, after R5.2bn in September. Year-to-date trade balance is in a R5.3bn surplus, noticeably better than the R3.7bn deficit same time last year. Year-to-date, exports are up 5.1% y/y, outpacing the 4.2% y/y growth in imports.
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