SARB flags geopolitical, AI, fiscal risks to stability

The global financial landscape has been significantly shaped by the escalation of the Middle East conflict since February 2026, leading to a sharp rise in oil prices, tighter global financial conditions, and increased market volatility.

This geopolitical shock, alongside rapid advances in frontier artificial intelligence (AI) models, has heightened global financial stability uncertainty.

The SARB notes that while global markets have adjusted in an orderly fashion, underlying vulnerabilities have increased.

AI advancements pose dual risks: they lower barriers to sophisticated cyberattacks on critical infrastructure and fuel stretched valuations in technology-related share prices, raising concerns about potential disorderly corrections.

Elevated sovereign debt levels, rising refinancing needs, and liquidity mismatches in private credit further expose sovereigns to shifts in investor sentiment and borrowing costs, creating a challenging environment for financial stability.

Domestic financial conditions have tightened, increasing residual vulnerability across several risk categories since the November 2025 FSR.

Geopolitical conflict and policy uncertainty amplify pressures on household and corporate balance sheets via weaker growth and higher costs.

This elevates the risk of unsustainable fiscal dynamics, with increased borrowing costs and significant debt redemptions.

Household distress has intensified as higher fuel and transport costs erode real incomes, making anticipated interest rate relief unlikely.

Operational vulnerability has risen materially, largely due to financial stability risks from frontier AI models.

Despite these challenges, the SARB affirms the financial system remains resilient, supported by well-capitalized institutions and ongoing regulatory efforts.