The South African Reserve Bank (SARB) has warned of risks to South Africa’s financial stability due to capital outflows and the possibility of sanctions following a U.S. diplomat’s accusation of supplying weapons to Russia to aid its campaign in Ukraine.
WARNINGS COME AFTER ACCUSATION OF SUPPLYING WEAPONS TO RUSSIA
The South African Reserve Bank said in its biannual health check on Monday said these risks, along with the threat of a grid failure due to repeated power cuts and persistently high inflation, have increased the systemic risks to the financial system.
“The risk of secondary or indirect sanctions being imposed on South Africa if its neutral stance on the Russia-Ukraine war is perceived as unconvincing has increased since the previous FSR.
“Should this risk materialise, the South African financial system will not be able to function if it is not able to make international payments in USD and it could lead to a sudden stop to capital inflows and increased outflows,”
the FSR warned.
SANCTION ON SA WOULD MAKE IT IMPOSSIBLE TO FINANCE ANY TRAD OR INVESTMENT FLOW..’
Sanctions on South Africa would make it “impossible to finance any trade or investment flows, or to make or receive any payments from correspondent banks in USD,” the report said.
It said the country’s domestic financial institutions and the financial system remained resilient amid the recent global banking sector turmoil, but a mix of global and local factors could test its strength beyond the next 12 months.
SOUTH AFRICA WAS ACCUSED OF SUPPLYING WEAPONS TO RUSSIA
These local issues were followed earlier in May by a diplomatic stand-off with the US as one of its diplomats accused the country of supplying weapons to Russia, leading to fears of sanctions and to a sharp drop in the rand.
Meanwhile, the recent furore over accusations by the US ambassador to South Africa, Reuben Brigety, that South Africa was supplying arms to Russia despite its declared policy of non-alignment has sparked a debate on whether the country’s arms control is lax, non-compliant, and lacks oversight.
The debate was further fuelled by the South African government’s reluctance to provide clear answers to questions about what Russia’s Lady R cargo ship came to deliver – or to pick up – from South Africa in December 2022.