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Current-account gap widens to 5% in first quarter

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South Africa’s current-account deficit widened to 5% of gross domestic product in the first quarter as dividend payments by local companies to foreign shareholders increased.

The gap around the current account, the broadest way of swap products or services, widened with a revised 4.6% inside fourth quarter of in 2009, the Reserve Bank said within the Quarterly Bulletin released on Tuesday during the capital, Pretoria. The median of 14 economist estimates published by Bloomberg was to get a deficit of 4.1%.

The persistent shortfall within the current account could undermine the rand, containing gained 1.4% contrary to the dollar this year after losing 25% of the company’s value in 2015. Africa’s most-industrialised economy relies mainly on foreign purchase of bonds and stocks to support fund the deficit.

“There could possibly be some downward pressure for the rand,” Azar Jammine,?chief economist of Johannesburg-based advisory service Econometrix, said in a interview in Pretoria on Tuesday. “The bigger the current-account deficit, the higher the shortage of forex so the greater the reliance on foreign capital inflows as a measure to accommodate that.”

The rand weakened 1.02% to 15.3148 per dollar from 23:40?in Johannesburg on Tuesday. Yields on rand-denominated government bonds due December 2026 rose nine basis points to 9.20%.

Foreign Inflows

Foreign investment in South African bonds and stocks swung a great inflow of R13.5 billion ($885 million) from an outflow of R300 million inside the fourth quarter. Foreign direct investment decreased to R9.9 billion from R13.7 billion.

“The risk-averseness among international investors spent their childhood years by way of the lackluster domestic economic growth and political uncertainty,” the Reserve Bank said.

Business confidence is a the minimum in almost 23 years after months of political uncertainty which had been triggered when President Jacob Zuma appointed a little-known lawmaker as finance minister in December. Zuma reappointed Pravin Gordhan four days later to the position he held from 2009 until 2014.

Junk Rating

The trade gap narrowed to an annualised R38 billion from the revised R41 billion in the previous quarter as exports, excluding gold, increased by 0.7% to R995 billion, driven by an increase in some commodity prices as well as the weaker rand. Imports rose by 0.8% to R1.11 trillion.

The shortfall about the services, income and current transfer account widened to the annualised R174 billion from R150 billion as dividend payments by South African companies to overseas shareholders rose. This is partly offset with a 9% increasing amount of gross travel receipts since the weaker rand and easier visa rules boosted tourism income, the central bank said.?Both S&P Global Ratings and Fitch Ratings this month maintained South Africa’s credit score assessment at BBB-, the lowest investment-grade level and warned it could still downgrade the nation’s debt to junk unless measures to boost growth are implemented. The economy contracted 1.2% while in the first quarter and can expand in the slowest rate this coming year since a 2009 recession, in line with the central bank.

South Africa’s fiscal parameters were healthier 16 a long time ago when S&P took over as second rating company to assign an investment-grade assessment for the nation’s debt, the Reserve Bank said.

While the rating companies and international lenders will watch a deficit of 5% or higher negatively, the shortfall on South Africa’s current account could narrow to lower than 4% of GDP toward no more the entire year, Dennis Dykes, chief economist at Nedbank, said.

“I’m sure the deficit could narrow as we go deeper on the year,” Dykes said in a interview in Pretoria. “I think the product range continues to be distorted by once-off factors including the dividend payments specially. It’s a bit on the blow, however i do not believe this is a permanent one.”

The government forecasts the current-account shortfall will narrow to 4% of GDP this year originating from a revised 4.3% in 2015.

? 2016 Bloomberg

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