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Some see window-dressing in S. Africa data changes

Ed Cropley
Friday, 15 Nov 2013 | 11:10 AM ET

JOHANNESBURG, Nov 15 (Reuters) - Surprise tweaks to South Africa's trade and budget numbers in the last month have sprinkled hope on a grim economic outlook but also sparked accusations of window-dressing by Pretoria to appease the ratings agencies breathing down its neck.

After making changes that produced an unexpected drop last month in the budget deficit to 4.2 percent of GDP, the Treasury revealed late on Thursday it would be including small neighbours Botswana, Namibia, Lesotho and Swaziland in monthly trade figures, a measure that should trim the trade deficit.

Both changes in methodology are perfectly reasonable, especially for a sophisticated emerging market that prides itself on the quality of its statistics gathering, but the timing of the alterations has raised eyebrows.

In the case of the budget, the Treasury for the first time included extraordinary items in the revenue columns of its Oct. 23 interim budget - in line with accepted international practice.

Similarly, with the trade numbers, the revisions correct the historical omission of commerce with the four smaller members of the century-old Southern African Customs Union (SACU) that has always been dominated by the regional giant.

"It does reflect a bizarre attitude problem on the part of the South African government generally that it treats SACU as part of the South African economy," said Keith Jefferis, an economist at Econsult in Botswana.

"They genuinely haven't thought of this as an export market. They genuinely see it as domestic sales."

Even though South Africa's SACU neighbours are small, they run big deficits with South Africa, making the net effect of their inclusion in Pretoria's trade numbers dramatic.

For instance, after the revisions, the 2012 deficit shrank by more than two thirds to 34.6 billion rand ($3.4 billion) from 116.9 billion under the old system - a reduction that triggered a 1 percent jump in the rand against the dollar.

FRAGILE, MOI?

The announcement comes six months before a general election and at a time of intense scrutiny of South African government finances.

The big three ratings agencies are looking very hard at Pretoria's books given its large fiscal and trade deficits, and Finance Minister Pravin Gordhan has made clear his displeasure at being branded a "Fragile Five" economy - the others being Brazil, India, Turkey and Indonesia - vulnerable to tapering of ultra-loose U.S. monetary policy.

"We don't feel fragile at all. We have a better growth path than many of the developed economies in the world, and a lot better prospects," he told Reuters in October.

Analysts said the timing of the two statistical adjustments suggested an attempt to tell a more positive story.

"I don't think the timing is accidental in the context of the tapering expectations, where countries with twin deficits are seen to be that much more reliant on foreign inflows," said Razia Khan, head of Africa Research at Standard Chartered.

"If you can show that the fiscal deficit - if you measure it properly - isn't so bad, and the trade deficit isn't that bad either, then it does cast the country in a slightly different light."

However, on closer inspection the revisions will not have as big an impact as the headline numbers suggest, as the central bank has already been including SACU trade estimates - albeit conservative ones - in its balance of payments calculations.

As such, most analysts say the net effect on the current account deficit for this year will be a drop from somewhere over 6 percent to somewhere over 5 percent of GDP, a shortfall that still leaves the economy vulnerable to a drying up of foreign portfolio flows.

"That's still pretty large against the backdrop of the withdrawal of quantitative easing," said ABSA capital economist Peter Worthington.

The central bank is due to release its revised estimates on Dec. 3.