South Africa

Central bank balance sheet stress testing (CBST) models are designed to support central banks in determining appropriate capital levels and informing decisions on dividend distribution. A key concept in this context is policy solvency, which refers to a central bank's ability to generate realized earnings over time that exceed its monetary policy and operational costs. This mission proposed a CBST model specifically tailored for the South African Reserve Bank (SARB). The background is that the SARB and National Treasury (NT) have established a new financial framework focusing on the Gold and Foreign Exchange Contingency Reserve Account (GFECRA). A key principle is to prevent GFECRA distributions from undermining the SARB’s policy solvency. The mission demonstrated the CBST model to enable the SARB to institutionalize a process for forecasting its balance sheet under macroeconomic scenarios, ensuring robustness despite external adverse shocks. The CBST model includes a Value-at-Risk approach for foreign exchange (FX) revaluation losses and assesses the adequacy of equity buffers under combined FX-at-Risk and Inflation-at-Risk scenarios. Given the SARB’s public commitment to annually recalibrate the two buffers, it is important for the SARB to institutionalize and publicly communicate the methodologies underpinning the process.