The effects of sovereign ratings on financial stability in South Africa

Abstract

No AccessThe effects of sovereign ratings on financial stability in South Africa Oliver Takawira John W. Muteba Mwamba Oliver Takawira0 http://orcid.org/0000-0001-7515-1733 Search for more papers by this author John W. Muteba Mwamba0 http://orcid.org/0000-0002-8002-1156 Search for more papers by this author Affiliations 0University of Johannesburg Published Online:1 Mar 2021https://hdl.handle.net/10520/ejc-aa_ajber_v16_n1_a2SectionsPDF ToolsAdd to favouritesDownload CitationsTrack Citations ShareShare onFacebookTwitterLinked InRedditGMailHotmailYammer AboutAbstractThe study examines the effects of sovereign ratings of Financial Stability (FS) using South Africa' quarterly data from 1999 to 2018. Financial stability is important for confidence in the system responsible for managing risk and creation of wealth while linking deficit and surplus units within an economy. Anything that affects this confidence, such as credit ratings, reduces or increases the availability of funds in the financial sector, hampering growth and development. South Africa, as an emerging market with an unpredictable political stability, is vulnerable to sovereign rating downgrades. Negative expectations or speculating actions towards downgrades can negatively affect the macroeconomic variables, leading to financial instability and disturbances in the fiscal or monetary framework. The paper is aimed at identifying the macroeconomic factors that influence FS, with a focus on the significance of the Sovereign Credit Ratings (SCR). Previous studies failed to contextualise and model the relationship between SCR and FS. The analysis used stepwise linear regression model as well as the Structural Vector Auto-Regression (SVAR) Model to assess the impact of unexpected shocks. The Principal Component Analysis (PCA) was used to create the indices for Sovereign Credit Rating (SCRI) and Rating Outlook (ORI). FS was split into four categories—system, conditions, confidence and the government bond index—as a measure of the performance of sovereign bonds. SCRI and other economic indicators were used to check variation in each of the FS categories. The results showed that foreign debt and gross domestic product (GDP) were the most influential determinants in most FS categories, whilst SCRI had very little impact. The other variables of concern on FS include interest rates, GDP growth, unemployment, balance of payments and household debt. Previous article Next article FiguresReferencesRelatedDetails None Volume 16, Issue 1 | Mar 2021 AffiliationAdonis & Abbey PublishersThe International Bibliography of Social Sciences (IBSS)EnglishBusiness and FinanceInternational JournalsAccreditationThe International Bibliography of Social Sciences (IBSS)LanguagesEnglish InformationCopyright © 2021, Adonis & Abbey Publishers:All rights reservedKeywordsFinancial stabilitySovereign ratingsMacroeconomic Indicators Disclosure The authors confirm that the manuscript has been read and approved by all named authors and that there are no other persons who satisfied the criteria for authorship but are not listed. The authors confirm that they have given due consideration to the protection of intellectual property associated with this work and that there are no impediments to publication, including the timing of publication, with respect to intellectual property. Ethical conduct of research The authors state that they have obtained appropriate institutional review board outlined in the Declaration of Helsinki for all human or animal experimental investigations. A signed informed consent document has been obtained from all participants included in the study.