The South African Reserve Bank (SARB) has stated in its Financial Stability Review that load shedding, the scheduled power outages in the country, is expected to negatively impact South Africa's economic growth and contribute to inflation. The report highlights that load shedding could reduce the country's overall economic growth by two percentage points this year. It may also add 0.5 percentage points to headline inflation in 2023 due to increased operating costs of running diesel generators, which are passed on to consumers, and potential shortages of goods along the food value chain.

Additionally, SARB warns that load shedding could have adverse effects on various macroeconomic variables. It could hamper a sustained recovery in employment, lead to unfriendly investor sentiment, increase South Africa's risk premium, and put pressure on the exchange rate. The report also notes that the transition to alternative energy sources is likely to further exacerbate income and development inequalities, as middle- to high-income households are better positioned to invest in such alternatives.

Load shedding poses a risk to financial stability as it can disrupt the functioning of critical infrastructure, such as automated teller machines (ATMs) and cellular networks, which are essential for the smooth operation of the financial system. It also contributes to increased insurance claims and costs, with insurers increasingly excluding load shedding-related claims from policies.

While the South African government has announced efforts to mitigate load shedding, SARB expects these measures to take effect only in the next 12 to 18 months. As a result, load shedding is likely to remain severe and negatively impact economic activity for at least the next year.

In preparation for a worst-case scenario, SARB's Financial Sector Contingency Forum (FSCF) is developing and testing contingency plans to mitigate the impact of a national grid shutdown on the financial system and the economy. The central bank recognizes the possibility of a national grid failure and is working on measures to address this potential risk. Eskom, the state-owned power utility, has recently warned of the potential need for high stages of load shedding during winter but denied claims of an imminent grid collapse.

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