The South African Reserve Bank (SARB) has warned the government against incurring high public debts to save its financial system.
The central bank said high debts are a precursor to a potential collapse of the financial system.
South Africa’s debts amount to 84% of its Gross Domestic Product (GDP) as the economy battles the dire effects of the global COVID-19 pandemic.
In its bi-annual review of the nation’s financial soundness, the apex bank in the country said a close affiliation between the financial sector and the government has become risky.
The document said “the interconnectedness between the financial sector and the sovereign has emerged as a major threat to financial stability in South Africa,”
South Africa in March announced its second recession in two years as President Cyril Ramaphosa faces more pressure to put the country’s flailing economy on a solid pedestal.
The President’s policies have been put under the spotlight in recent months as the nation struggles to come out of a hard-biting recession and a pandemic.
The SARB said in September that a GDP contraction of -8.2% is expected in the third quarter of 2020, as against earlier projections of -7.3%.
