Rising geopolitical tensions and global political uncertainty are among the biggest risks facing South Africa’s financial sector, the South African Reserve Bank (SARB) stated in its semi-annual Financial Stability Review.
According to the central bank, the country is “vulnerable to the spillover effects of trade-related tensions and international conflicts” due to its “limited capacity to mitigate them.” This fragility increases the South African economy’s exposure to external shocks.
Since taking office, U.S. President Donald Trump has imposed tariffs on products such as steel and automobiles and threatened reciprocal duties on trade partners who fail to reach agreements by July 9.
Additionally, the recently erupted conflict between Israel and Iran has driven oil prices higher. This instability has led central banks to refrain from cutting interest rates, while investors have pulled away from higher-risk financial assets.
According to the SARB, this environment has “increased the risk of a rapid capital outflow from South Africa.” A significant sell-off of government bonds denominated in rand (the national currency) could raise the cost of government borrowing and jeopardize fiscal sustainability. The report warns that unexpected external shocks may worsen financing conditions, which, in a context of limited fiscal space, could further strain the economy.
The central bank underscores the need for preventive measures to ensure the country’s financial stability.
Source: Engineering News
