At the same time, the ongoing policy initiatives designed to address this issue and prevent a similar build-up in the future are essential. If these structural challenges are only resolved slowly, the outlook for the euro area banking sector will hinge on cyclical developments and their impact on banks’ operational environment.
A failure to consolidate the fiscal position would leave the country vulnerable in the face of another global shock, and if the country’s credit rating is further downgraded, would raise borrowing costs for the entire economy. Fortunately, in the 2014 MTBPS, the Minister of Finance outlined a clear path towards fiscal consolidation in South Africa.