Rand tumbles ahead of trade data

The rand ended the week weaker than the critical R9 a dollar level, trading at R9.06 at Friday’s close. It tumbled from R8.80 on Wednesday, ahead of the release of trade data, losing ground sharply on news on Thursday from the SA Revenue Service of a record R24.5 billion trade shortfall in January.

The trade figure implies the current account deficit, equal to 6.1 percent of gross domestic product (GDP) last year, could widen further. The services account, the other leg of the current account, is always in deficit. The deficit is the gap between revenue of exports of goods and services and the cost of imports.

A large current account deficit puts the country at risk of running out of funds to pay for its imports. The gap is filled by inflows on the financial account – and these are vulnerable to global investor sentiment. Ahead of the news, a net R15.4bn had flowed into local bonds and equities in the year to Wednesday. Figures this week will show whether the strong inflows persist.

Elna Moolman, the South Africa economist at Renaissance Capital, said the country was in “a particularly dangerous space given the risk that fiscal deterioration might trigger a ratings downgrade to the lowest investment grade rating, a threshold that we believe is key for the portfolio inflows that are required to fund the wide current account deficit”.

Her comment on “fiscal deterioration” referred to an upward revision of government’s budget deficit: the gap between revenue and spending. Finance Minister Pravin Gordhan said last week the deficit for the fiscal year that ends this month would be equal to 5.2 percent of GDP, from his October estimate of 4.8 percent. – Ethel Hazelhurst