Yesterday I attended an interesting presentation at our colloquium. A Master’s student presented his proposal for a study on economic imbalances and how they create a propensity for crises. It is a complicated story with some advanced techniques being used and I will leave it to the student and supervisor to write us a blog post sometime in the future. I did wonder whether it links to last week’s musing on the exchange rate and The Economist’s conclusion “that maybe foreign exchange markets no longer severely punish bad economic performance like high inflation or poor trade performance and governments can direct their focus to stabilising the financial sector and reducing unemployment”. Can we tell a story of the South African economy in terms of gaps and balances or imbalances, and what they imply for the sustainability of our growth path and for policy? So I put together this:
Is there anything that I’m forgetting?
In South Africa we have for some time been investing more than we have been saving, spending more than the tax take and importing more than we have been exporting. This has been made possible by using other people’s savings. This can keep going as long as someone is willing to extend our credit / buy our debt. My question is, what do changes in the composition of the elements above imply for the sustainability of this approach?
Does anyone know of a good paper, or have some thoughts to add?