Johannesburg - China, the largest of the Brics economies, would contribute the most to the group’s $100 billion (R1 trillion) safety net, $41bn, and South Africa would put in only $5bn, the South African presidency said yesterday. Brazil, Russia and India would contribute $18bn each.
At the fifth Brics summit in Durban in March, President Jacob Zuma said finance ministers and central bank governors had concluded that “a self-managed contingent reserve arrangement would have a positive precautionary effect, help Brics countries forestall short-term liquidity pressures, provide mutual support and strengthen financial stability”.
The Brics nations hold foreign currency reserves of $4.4 trillion, $3 trillion of which are held by China, according to website thebricspost.com.
South Africa has an international liquidity position – effectively net foreign exchange reserves – of only about $45bn.
Nedbank group chief economist Dennis Dykes said the funds would probably not leave the individual countries but would represent a commitment to assist in times of financial need – in other words, when countries had a shortfall in their current accounts and were facing falling capital flows.
He said it was difficult to say how effective the arrangement would be but noted that, for instance, potential currency speculators would be aware that there was $100bn available to fend off an attack.
Most of the countries’ currencies are under pressure.
According to Stanlib chief economist Kevin Lings, earlier this week the rand had declined by “a substantial 18 percent against the dollar, the Indian rupee by 19 percent, the Brazilian real by 14.1 percent”.
Frontier Advisory’s Martyn Davies warned the countries would be hard put to make the contributions “in the light of their decelerating economic growth rates”.
While China was in the best position to support the fund, he noted that the timing was bad for contributions of “tens of billions of dollars”. He noted that there had been massive cost cuts under the country’s new leadership, which had slashed spending on state programmes and state-owned enterprises.
“In this environment it may be difficult to justify spending such a large amount on grand geo-financial initiatives.”
Davies said the role of public opinion in China had changed dramatically in recent years due to “connectedness through social media”. This was exerting great pressure on the Chinese government and increasingly influenced policy.
He pointed out also that the other Brics countries were struggling with falling currencies and slowing growth.
Lings noted India’s fiscal deficit was very high at over 8 percent of gross domestic product (GDP), while government debt was up at almost 70 percent of GDP. “Brazil’s fiscal deficit is more manageable at around 3 percent of GDP, but government debt is up at almost 70 percent.”
South Africa’s fiscal deficit is expected overshoot the 4.6 percent projection in the February Budget, while its debt ratio is a little over 40 percent.
However, the country’s $5bn contribution, which converts into a little over R51bn at yesterday’s exchange rate, is only a fraction of the R1.1 trillion national Budget this year. - Business Report