South Africa: The Financial Sector-Sovereign Nexus

Heiko Hesse and Ken Miyajima

No 2022/051, IMF Working Papers from International Monetary Fund

Abstract: Globally, financial institutions have increased their holdings of domestic sovereign debt, tightening the linkage between the health of the financial system and the level of sovereign debt, or the “financial sector-sovereign nexus,” during the ongoing COVID-19 pandemic. In South Africa, the nexus is still relatively moderate, albeit rising, and the increased focus of the Prudential Authority on the associated risks provide reassurance. Options to mitigate such risks through the use of regulatory measures can be explored. However, absent the necessary fiscal consolidation and structural reforms, risks from the nexus to both the financial system and the sovereign will increase.

Keywords: South Africa; Financial Sector; Sovereign Debt; Bank-Sovereign Nexus; Home Bias; Financial Stability; Banking Risk; Sovereign Risk; Capital Flows; Bank Regulation; nonresident holding; holdings of Government Securities; banking risk; holdings of government securities; investor Base; nonbank financials; Sovereign bonds; Government securities; Domestic debt; Credit risk; Africa; Global (search for similar items in EconPapers)
Pages: 21
Date: 2022-03-04
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