R111 Billion Capital Outflow Underscores South Africa’s Growing Financial Risks, Says Reserve Bank

JOHANNESBURG — South Africa has experienced a capital outflow of over R111 billion in just the first five months of 2024, a staggering shift that underscores mounting financial vulnerabilities. This is according to the South African Reserve Bank’s (SARB) Financial Stability Review, released Thursday, which paints a cautiously resilient but increasingly strained picture of the country’s economic and financial health.

Despite these outflows, the SARB says the financial system remains stable, but warned that it is now “being tested” by a confluence of global uncertainty, domestic policy fragility, and structural weaknesses.

“South Africa’s financial system is demonstrating resilience, but that resilience is being tested,” the SARB stated in its semi-annual review.

Capital Outflows and Risk Aversion

The R111 billion capital flight is largely attributed to a broader retreat from emerging markets as investors grow wary amid escalating geopolitical tensions, inflation volatility, and rising interest rates in developed economies. South Africa has not been spared, with increased risk aversion compounding existing structural issues.

Credit Growth Outpacing Economic Output

A major concern flagged in the report is the mismatch between credit expansion and real economic growth. SARB cautioned that when credit growth significantly outpaces GDP growth, it can lead to dangerous imbalances—including household over-indebtedness, defaults, and asset price bubbles.

Crucially, the central bank notes that much of this credit is circulating within financial institutions rather than flowing to struggling households or small businesses that need it most.

“A credit boom without productive real economy gains increases vulnerability to financial shocks,” the SARB warned.

Infrastructure and SOEs Still a Drag

State-owned enterprises (SOEs) and underperforming municipalities remain high-risk flashpoints. Although electricity supply has marginally improved and there is some recovery in transport infrastructure, the Reserve Bank said the risk of systemic infrastructure failure has grown since its last review.

Grey List Exit on the Horizon

In a silver lining, South Africa has completed all 22 action items required for removal from the Financial Action Task Force’s (FATF) grey list, which it was added to in 2023 due to deficiencies in anti-money laundering and terrorism financing controls.

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An international team will visit South Africa before October to assess the country’s compliance. A successful delisting could boost investor confidence and help slow or reverse capital outflows.

“Exiting the grey list would be a key turning point in restoring trust in South Africa’s regulatory and financial systems,” said one analyst.

What Lies Ahead?

While the country’s financial sector is holding firm, the pressure is mounting. The SARB urged commercial banks, lenders, and policymakers to adopt more disciplined lending practices, support real economic activity, and avoid pro-cyclical credit behavior that could aggravate imbalances.

With households still battling high debt burdens and SMEs facing tight credit conditions, the Reserve Bank emphasized the need for cohesive fiscal and monetary policies to navigate ongoing global shocks.

The next Financial Stability Review will be published in six months, offering more insight into whether South Africa’s financial system can maintain its footing under increasingly difficult conditions.