§ Turning now to my crystal ball, I must say something about the economic outlook for the coming year, because that is what must largely influence the kind of action I ought to take in this Budget. This, of course, is much the most difficult part of my task. I will begin with the external prospect. This, so far as I can judge, is satisfactory. As I mentioned earlier in my speech, imports are showing a tendency to rise in volume while the growth of exports is still delayed by the difficulties in foreign markets, especially in the sterling area. Consequently, our current surplus on the balance of payments will certainly be a good deal smaller this year than the exceptional level of last year. However, I expect it to be a respectable surplus which should be sufficient to cover our investment abroad.
§ In this connection, I should tell the Committee that I expect, in 1959, a larger outflow of capital on Government account than in recent years. This results partly from the decision we took at the Montreal Conference to help still further the less developed countries of the Commonwealth. We have undertaken commitments to other countries as well. The needs of the primary producing countries will, of course, vary with the prospect for their exports, which, in turn, will vary with the level of activity in the more highly developed industrial countries.
§ There are one or two special features about 1959 which will have a close bearing on the state of the reserves. First, there is the repayment of £71 million to the International Monetary Fund which was reflected in the reserve figures last month. I am sure that the Committee will agree that it was satisfactory that, taking this large figure into account, the reserves fell by as little as £6 million over the month. Over the first three months of the present year the reserves have risen about £25 million after allowing for the repayment of £71 million to the International Monetary Fund.
§ Secondly, we expect to pay later in the year a gold payment to the International Monetary Fund amounting to £58 million in connection with the increase in quotas, a subject which we debated recently. 40 Other countries in the sterling area will be increasing their quotas, too, and in so far as they make their payments from their balances in London there will be some draft on the gold reserves on that account, also. In view of these and other factors I expect, on balance, the gold reserves to show some fall in 1959.
§ As far, however, as the fall may be due to the special payments I have mentioned, the ultimate effect is to maintain or more than maintain the strength of our position, because in exchange for these payments we are acquiring second line reserves of a far greater value. Thus. the repayment last month increased our International Monetary Fund drawing rights by an equivalent amount. The gold payment we make to increase our quota will further increase our right to draw in times of need, by up to five times the amount of the payment.
§ To sum up, even though the reserves may well show a net decline for these special reasons, 1959 should be a satisfactory year both for the balance of payments and for the external economic position generally. Economic expansion will be bound to bring in its train a higher import bill. And this tendency for our imports to increase is likely to precede a recovery in our exports. It is, in fact, to some extent a precondition of such a recovery that we and other industrial countries should buy more from primary producers. But in the longer run we must match this higher import bill by at least an equivalent increase in our export earnings if we are to keep a sound balance of payments and to continue to play our part in international economic development.
§ The conclusion I reach is that it is impossible to exaggerate the importance of our maintaining and, indeed, improving our competitive position through efficient investment and lower costs. This is, to my mind, the key to success in the future.