Treasury expects lower current account deficit

Pretoria – South Africa’s current account deficit is expected to average 3.9% over the next three years, down from an average of 5.2% between 2013 and 2015, said National Treasury.

Treasury, which delivered its Medium Term Budget Policy Statement (MTBPS) on Wednesday, provided reasons for the narrowing.

“The current account deficit narrowed in the second quarter as net exports increased and the trade account recorded a surplus, despite some weakening of the terms of trade.

“The deficit was funded through an increase in net portfolio investment, mainly into government bonds, and a rise in net foreign direct investment,” said Treasury.

Exports and imports

The narrowing current account deficit comes amid weaker export and import growth.

“In recent years, despite the large and sustained depreciation in the value of the rand, South Africa has not experienced strong export growth,” said Treasury.

“Since 2010, the real effective exchange rate has depreciated by 20.9%. Yet the main factor in export growth is global demand, which has been moderate,” Treasury added.

Treasury said that weaker local demand has further impacted imports.

“Soft domestic demand was reflected in the decreased volume of imports, which fell by 3.1% in the first half of the year compared with the same period in 2015.

“Notable exceptions included vegetable products, oils and fats, where increases of between 43% and 60% reflected the effects of the drought.

“Over the medium term, improved domestic demand should support import growth, but the weaker currency will limit the expansion of volumes. Imports are expected to contract in the current year and grow by 2.7% in 2017,” said Treasury.