Tim Cohen
10 November 2008
column
Johannesburg — HOW does SA deal with its rising and troubling current account deficit?
One suggestion you sometimes hear is that, in a way, the thing to do is rely on a declining rand to gradually unwind the deficit.
But Sanlam economist Jac Laubscher made a few interesting points on the topic this week. The first is that the "unbalanced" way in which exchange controls were relaxed has contributed to the negative balance on the revenue account because it's now easier for foreigners to acquire South African assets than for us to acquire foreign assets.
From 2000 to 2006, SA's net foreign liabilities rose from R51bn to R287bn, which means that there is now a torrent of dividends flowing out of the country.
Another interesting point is that those who believe that the trade account will right the ship may be making a serious mistake. The trade account makes up only about a quarter of the current account deficit, which makes it difficult to reduce the latter simply by reducing imports, Laubscher says.
So what should SA do? He comes up with a possibly unpopular solution: borrow foreign money. In these days of global credit shortages, is this even possible? It is, but it would mean going to the World Bank and the International Monetary Fund. But why not, since so much of the cash will be used to fund the infrastructure programme?
"The depreciation of the rand will boost the adjustment in SA's foreign accounts over time," Laubscher says.
"Little more can be done to reduce the deficit, except to stop the infrastructure programme in its tracks - which would definitely not be a good idea.
"SA should rather focus on exploiting alternative sources of foreign capital as a bridging measure until the tide turns again."
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