Bulletin: South Africa's Fiscal Problems Are Not Yet External Problems, Given Latest Data

LONDON (S&P Global Ratings) Dec. 15, 2020-- South Africa's current account swung from a deficit of 2.9% of GDP in the second quarter (Q2) of 2020 to a surplus of 5.9% in Q3--the largest quarterly surplus recorded since 1988. The sharp rebound was driven by strong merchandise-goods export-volume growth, while merchandise-goods import volumes remained subdued. The merchandise trade surplus rose to 9.0% of GDP in Q3, from just 1.7% in Q2, while the deficit on services, income, and current transfers narrowed to 3.1% of GDP from 4.5% in Q2. Primary income payments to nonresidents (much of which consists of interest payments to foreign investors in South Africa's government bond market) also fell. The longstanding worsening of South Africa's fiscal accounts,

...LONDON (S&P Global Ratings) Dec. 15, 2020-- South Africa's current account swung from a deficit of 2.9% of GDP in the second quarter (Q2) of 2020 to a surplus of 5.9% in Q3--the largest quarterly surplus recorded since 1988. The sharp rebound was driven by strong merchandise-goods export-volume growth, while merchandise-goods import volumes remained subdued. The merchandise trade surplus rose to 9.0% of GDP in Q3, from just 1.7% in Q2, while the deficit on services, income, and current transfers narrowed to 3.1% of GDP from 4.5% in Q2. Primary income payments to nonresidents (much of which consists of interest payments to foreign investors in South Africa's government bond market) also fell. The longstanding worsening of South Africa's fiscal accounts, exacerbated by the pandemic, has posed risks for the country's external performance. We think, however, that the Q3 data should help alleviate fears of a worsening twin deficit problem for South Africa, at least for now. While the connection...

Bulletin