South Africa's unreliable power supply and high level of government debt are two of the main risks to its financial stability, the South African Reserve Bank said on Tuesday.

Africa's most developed economy has seen 170 days of rolling blackouts this year due to a maintenance backlog at state utility Eskom's ageing coal-fired power plants.

This has not only hit corporate productivity but also hurt investor sentiment, the South African Reserve Bank said in its biannual health check of the financial system.

“Insufficient and unreliable electricity supply is likely to threaten the viability of some corporates, especially small and medium-sized enterprises,” it said, adding this could spill over into the financial sector.

The country's gross sovereign debt is more than two-thirds of GDP and government intends to take on R400bn of Eskom's debt, increasing its burden.

“The increased incidence of state-owned enterprises' debt being taken over by government exacerbates this (financial) vulnerability,” the bank's financial stability review (FSR) said.

The FSR also noted global stagflation and rapid tightening of financial conditions coupled with slow and inequitable local growth could add further risk.

Stagflation is characterised by a prolonged period of high inflation, low economic growth and high unemployment.

Last week the central bank increased its lending rate by 75 basis points to 7%, raising its inflation forecast and cutting 2023 growth projections.

Cyber attacks, climate change and global conflict also pose risks to financial stability, the bank said.

However, it said Covid-19, which featured among the top concerns in its May review, was no longer a risk due to less virulent variants. 

Reuters