Greylisting, govt debt has ‘significant impact’ on SA economy - Kganyago

South Africa was placed on the greylist a year ago due to the government’s failure to enforce international standards and regulations on anti-money laundering and terrorist financing. 

The global watchdog has urged South Africa to continue implementing its action plan to address the remaining deficiencies.

Addressing the Ordinary General Meeting of SARB shareholders on Tuesday, Kganyago highlighted the greylisting and high government debt as significant challenges.

"South Africa is still confronted with its government’s growing debt levels and ever-higher debt-servicing costs, as well as domestic financial institutions’ high exposure to that debt.

“The SARB continues to monitor this sovereign financial sector nexus closely. 

“Although we are working hard to exit the Financial Action Task Force greylist, the effects of being greylisted are being felt as foreign counterparties apply greater scrutiny to our domestic institutions," said Kganyago.

Earlier this year, the Treasury reported significant progress in building a financial system that is less vulnerable to abuse and illicit financial activities. 

However, six of the 22 technical deficiencies raised by the Financial Action Task Force still need to be addressed.

 This involves both legislative and regulatory changes and improvements in their implementation and application.

Treasury previously indicated that South Africa aims to be removed from the greylist by February next year.

Once all measures are implemented and the improvements are deemed sustainable, South Africa will qualify for removal.

Kganyago explained that the Prudential Authority and the Financial Surveillance Department are driving the SARB’s efforts to get South Africa off the FATF greylist. 

"Although foreign counterparties have been applying greater scrutiny to our domestic institutions as a result of the FATF greylisting, the PA has found no immediate negative impact on correspondent banking relationships. It is nevertheless imperative that the action items are addressed timeously to avoid long-term negative effects on the economy," he added.

At the same time, Kganyago warned that climate change is likely to negatively impact the economy. 

"The effects of climate change are becoming more frequent and more severe, as highlighted by the recent winter storms that lashed at least four provinces and necessitated the declaration of regional states of disaster.

“As part of its ongoing efforts to understand and mitigate the risks associated with climate change, the SARB conducted its first comprehensive stress test of South Africa’s major insurance companies during the 2023/24 period, which included a climate change component. 

“Going forward, climate-related risk will increasingly feature as part of the SARB’s stress-testing scenarios," he said.

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