Some emerging markets are vulnerable

By Staff Writer

By Evan Pickworth

In its latest Global Financial Stability Report, the International Monetary Fund says that while emerging market countries have been broadly resilient so far to the global credit crisis, some "remain vulnerable" to a credit pullback.

South African should be included in this bracket as the IMF includes among the vulnerable countries those carrying large current account deficits in need of finance.

"Some remain vulnerable to a credit pullback, especially in those cases where domestic credit growth has been fuelled from external funding sources and large current account deficits need to be financed," says the IMF.

"Debt markets, particularly for external corporate debt, have felt the impact of the turbulence in advanced countries and costs of funding have risen and further shocks to investors' risk appetite for emerging market assets cannot be ruled out if financial conditions worsen," it adds.

South Africa's current account deficit hit R157.658-billion in the fourth quarter 2007 from the record R163.309 (R162.6 billion) in the third quarter.

As a percentage of GDP the current account deficit was recorded at 7.5% in the fourth quarter from 8.1% in the third quarter.

For 2007 as a whole a deficit of 7.3% was recorded from the 6.5% seen in 2006. A deficit above 6% is concerned concerning.

The bugbear was foreign portfolio inflows at only R2.9-billion in the fourth quarter from 33.7 billion in the third, although this was made up to an extent by foreign direct investment into South Africa, which recorded an inflow of R13.374-billion in the fourth quarter of 2007 from a revised inflow of R13.055 (11.836) billion in the third quarter.

And according to the IMF, the global problems are increasing risks to stability: "The global financial system has undoubtedly come under increasing strains since the October 2007 GFSR, and risks to financial stability remain elevated."   

"The critical challenge now facing policymakers is to take immediate steps to mitigate the risks of an even more wrenching adjustment, including by preparing contingency and other remediation plans, while also addressing the seeds of the present turmoil," concludes the IMF.

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