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Working Paper 90 - Current Account Situation in South Africa: Issues to Consider
The purpose of this paper is to raise some issues associated with relatively high current account deficit in South Africa and to draw lessons from other country experiences. In particular, the paper investigates whether high current account deficits lead to a crisis and/or what type of adjustment measures may be implemented to avoid a crisis.
The current account deficit in South Africa stood at 6.5 per cent of Gross Domestic Product (GDP) in the second quarter of 2007 from 6.9 per cent in the first quarter; averaging 6.7 per cent in the first half of 20071 . This deterioration of the current account deficit since 2000 should not be ignored although there is no need for panic. Following the introduction, the next sections attempt to address four key questions: (i) Is the current deficit unusually or even abnormally large? (ii) How long can it be sustained? (iii) Are current account reversals harmful? And (iv) What are the risks to South Africa? The tone of these questions may seem pessimistic but they are warranted and they deserve some attention. The final section provides some key points on the way forward.