Reserve Bank flags SOEs defaulting on debt obligations
The Bank’s latest financial stability review also speaks of a ‘sudden stop’ in foreign investors’ appetite for local bonds should SA be downgraded
The highest risks to SA’s financial stability are its deteriorating public finances and rising government guarantees to state-owned enterprises (SOEs), says the South African Reserve Bank. In its latest financial stability review, released on Thursday, the Bank says that defaults by SOEs on their debt obligations could hit both government finances and other financial institutions exposed to these enterprises. The comment, which comes after South African Airways (SAA) had to be bailed out by the government to stop it defaulting on loans and triggering defaults across the SOE sector, came as a reminder that the SOEs have increasingly become not just a fiscal and ratings threat, but could put SA’s whole financial system at risk. The Bank also flags the risk of a "sudden stop" in foreign investors’ appetite for local bonds if SA were to have its credit ratings downgraded, and says that SA may be particularly vulnerable if there is a significant global, financial market correction.
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