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South Africa Current-Account Gap Widens on Dividend Payouts

(Bloomberg) -- South Africa’s current-account deficit widened more than expected in the fourth quarter of 2023 due to dividend and interest payments.

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The overall balance on the current account, the broadest measure of trade in goods and services, expanded to an annualized deficit of 2.3% of gross domestic product, or 166 billion rand ($8.9 billion), from a revised 0.5% of GDP in the prior quarter, the South African Reserve Bank said in a statement on Thursday.

The median estimate of eight economists in a Bloomberg survey was for a shortfall of 1.2% of GDP. South Africa has now posted a current-account gap for a seventh straight quarter. The deficit meant the full-year shortfall was 1.6% of GDP, the deepest in four years.

The worse-than-expected quarterly deficit was largely driven by a bigger shortfall on the services, income and current transfer account of 253.7 billion rand in the fourth quarter, compared with 215.4 billion rand in the prior three months.

That increase stemmed from a larger deficit on the primary income account due “to higher dividend payments by companies,” the central bank said. Outflows in the account were the largest since the second quarter of 2022.

The rand extended gains after the data was released to trade 0.6% stronger against the US currency. It was quoted at 18.72 per dollar at 6:04 p.m. in Johannesburg.

The deterioration in South Africa’s external dynamics is expected to continue, reflecting subdued commodity prices and robust imports from investments in renewable energy capacity, David Faulkner, an economist for South Africa and sub-Saharan Africa at HSBC Bank Plc, said.

“Logistics constraints, including disruption to the country’s freight transport corridors and ongoing congestion at Transnet SOC Ltd.’s ports, are also likely to influence the trade position and current account” Faulkner said. HSBC is forecasting a current account-deficit of 2.8% of GDP this year and 3% in 2025.

Key Insights

  • Trade surplus narrows to 88.1 billion rand in the fourth quarter from 181.1 billion rand in the prior three months

  • Trade surplus shrank due to the value of merchandise imports increasing more than that of goods exports, contributing to the full year figure shrinking to 1.5% of GDP from 3.4% of GDP in 2022

  • Terms of trade including gold deteriorated further in the quarter as the rand price of imported goods and services increased more than that of exports

  • Terms of trade on annualized basis also deteriorated on the back of increased prices of imports

--With assistance from Ana Monteiro.

(Updates with comment in paragraph seven and eight)

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