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This is what is driving SA’s current account surplus

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In SA’s case, it is due to a collapse in consumer demand that has resulted in lower imports, coupled with a big increase in the price of the commodities SA exports

After posting current account deficits for 17 years, SA recorded a current account surplus for the first time in 2020. According to the SA Reserve Bank, the current account surplus narrowed to 3.7% in the fourth quarter of 2020, from 5.9% in the third quarter.

A current account surplus means more money is flowing into the country than out of the country and is typically considered a positive for inflation, interest rates and currency. While SA is also a significant exporter of agricultural products, the price effect is not as significant in agriculture compared to commodities.

Another potential reason for the current account to fall into a deficit would be a reduction in exports. This scenario too is unlikely given the strong demand for commodities as developed markets recover and China refocuses on its Belt & Road infrastructure initiative.

 

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