Two big threats to South Africa
The South African Reserve Bank (SARB) has added two new risks to the country’s Risks and Vulnerabilities Matrix (RVM) – critical infrastructure failure and increased financial distress.
This was revealed in the SARB’s latest Financial Stability Review (FSR), which showed that South Africa’s financial stability outlook has improved since the June 2024 FSR.
The Reserve Bank attributed this improvement to domestic factors, including an improved fiscal outlook, a decrease in load-shedding, lower interest rates, and more positive investor sentiment since the formation of the Government of National Unity (GNU).
Regardless of the improvement, several risks to South Africa’s financial stability remain, as the SARB’s RVM shows.
The RVM provides a forward-looking assessment of the key risks to financial stability in South Africa over the short, medium and longer term.
In the latest RVM, the SARB identified six risks:
- Escalating global conflicts.
- Rapid capital outflows amid declining market depth.
- Deteriorating public sector debt ratios.
- Remaining on the FATF greylist over the medium term.
- Increased financial distress in households and small-, medium- and micro-enterprises (SMMEs).
- Critical infrastructure failure.
The latter two on the list above have replaced two other risks – tight financial conditions for longer and insufficient and unreliable electricity supply – that the SARB has removed from the list since the last FSR.
According to the SARB, South Africa’s financial stability outlook has improved since the June 2024 FSR.
However, Momentum Investments chief economist Sanisha Packirisamy said the six remaining risks significantly threaten South Africa’s outlook.
Escalating global conflicts and remaining on the FATF greylist beyond June 2025 are risks deemed to pose the highest residual vulnerability to the financial system.
Packirisamy said heightened geopolitical tensions could affect the financial system in several ways. This includes –
- Increasing volatility and uncertainty in financial markets, leading to a risk-off environment.
- Supply chain disruptions which introduce inflationary pressures and could derail the ongoing monetary policy easing cycle.
- Limiting access to a wider variety of markets could lead to higher costs and reduced availability of funding, hedging, and diversification options.
- Increased risk of cyber-attacks.
In addition, while South Africa’s fiscal outlook has improved since the June FSR, “several risks” to the fiscal outlook remain.

“As usual, the biggest concern in this category is the financial sector’s high exposure to sovereign debt, which is reported to have increased since the June 2024 FSR,” Packirisamy said.
The remaining three risks – critical infrastructure failure, increased financial distress in households and SMMEs, and rapid capital outflows amid declining financial market depth – pose similar residual vulnerabilities to the financial system.
Packirisamy pointed out that the SARB had previously only featured the electricity crisis. However, in the November FSR, the bank expanded its assessment to all the network industries, including electricity, logistics, and water.
She explained that the deterioration in these industries could impact the financial system directly by disrupting operations.
However, it could also have indirect effects, such as adversely impacting municipalities’ financial health and making it challenging for them to meet their debt obligations to financial institutions.
In addition, it could lead to deteriorating municipal service delivery, which could spark social unrest with resulting losses absorbed by the financial system.
“The SARB and the Financial Sector Contingency Forum are developing contingency plans to ensure the domestic financial system remains operationally resilient in the event of critical national infrastructure failures,” Packirisamy said.
For example, the SARB said in its review that establishing direct connectivity among key nodes in the financial sector is a current priority initiative.
This would assist in a scenario where existing telecommunication networks are unable to function so that a certain level of payment, clearing, and settlement activity can continue.
The second new risk, increasing financial distress in households and SMMEs, is slightly offset by the fact that the aggregate banking sector appears resilient against credit risk.
However, the SARB flagged that individual banks may be more exposed and thus require close monitoring.
Lastly, the SARB reported that the financial system’s vulnerability to the risk of declining market depth has reduced somewhat since the June 2024 FSR.
According to J.P. Morgan’s estimates, this improvement was supported by the increase in the allocation to domestic assets from 58.5% in the first quarter of 2024 to 62% in the third quarter.
“The higher domestic weighting – lower offshore weighting – may be attributed to investor optimism on the back of the formation of the GNU, a stronger rand against the US dollar, and improving structural constraints,” Packirisamy said.
Comments