Current Account Deficit Blowout Is No Surprise

Readers of should not be surprised, like consensus economists are, that the South African current account deficit has blown out to the widest level in four years. When the current account is in “deficit”, it in broad terms means South Africans are borrowing from abroad to pay for current consumption and investment spending.

The Reserve Bank’s Quarterly Bulletin for the second quarter of 2012, released on Tuesday, showed that the current account gap widened to R200bn or 6.4% of GDP from 4.9% in the first quarter. Economists expected a deficit of only 4.7%, reports Fin24.

By keeping interest rates below levels they would otherwise be on the free market, the Reserve Bank causes an overexpansion of credit supply, which results in people living beyond their means.

I wrote about these and other imbalances before, and how the SARB is creating them here, here and here.