Exploring the Economy’s Resilience to Climate Change-Induced Shocks: the Case of South Africa

In the last few decades, global climate and environmental changes have significantly increased and have particu- larly impacted South African countries, which are among the most climate-vulnerable nations in the world due to high levels of poverty and inequality. Climate change has become a major concern in South Africa Republic. The country's National Adaptation Plan highlights evidence of increasing extreme weather events, such as heat waves, longer dry spells, and more intense rainfall, all of which negatively affect growth including the market-oriented agricultural economy. The agricultural sector contributes about 10 percent to South Africa's total export earnings (International Trade Administration, 2024). Adapting to climate change is becoming increasingly urgent and is essential for achieving the Sustainable Development Goals (SDGs) (Fuldauer et al., 2022). Investing in building climate resilience brings immediate benefits, but there is also a pressing need to incorporate climate risks into long-term decision making across sectors to avoid future risks in infrastructure, food and lanf management (Ranger and Garbett-Shiels, 2012). This paper aims to investigate South Africa's resilience to climate-induced shocks across different dimensions and explore potential coping strategies. Various macroeconomic variables are in- volved, and we utilize the SVAR model to detect the effect of a climate shock (precipitation) on financial and economic growth variables. Structural Vector Autoregression technique is used to analyze the relationship between multiple variables over time. In an SVAR model, variables are organized to study how shocks or disturbances in one variable impact other variables in the system. By imposing structural assumptions on the relationships between variables, the SVAR model allows researchers to identify and measure the causal relationships between different economic variables. One crucial aspect to consider is the impact of climate shocks on credit availability and financial inclusion, as these factors play a pivotal role in reducing inequality and enhancing the quality of life for communities. In the face of economic challenges caused by climate-related shocks, such as decreased agricultural output or disrupted supply chains, maintaining access to credit and financial services becomes even more critical in stabilizing the macroeconomic cycle. Efforts led by organizations like the World Bank and the South African Committee of Central Bank Governors are aimed at ensuring that financial inclusion remains a fundamental com-ponent of resilience-building strategies as South Africa's response to climate-induced challenges.