The finance minister and his National Treasury have had a rude awakening.
For decades the Treasury set the national budget and parliament fell obediently in line to rubber stamp it. The Treasury decided how much the government would spend, collect in taxes, and how much and how the country would have to borrow to make up the difference — until this year, when it was parliament that decided the final shape of the budget, as it will do in any future government by coalition.
Finance minister Enoch Godongwana has acknowledged this reality.
The financial legacy left by the once all-powerful Treasury is an uncomfortable one. It has bequeathed a debt mountain of close to R6-trillion and a huge interest bill, now close to R40bn a year. This is equivalent to a suffocating 20% of all national government spending. The interest-to-spend ratio had fallen to 8% by 2013, but has more than doubled since then.
After largely balanced budgets between 2000 and 2008 things went gradually and consistently wrong in the wake of the recession of 2009, which was linked to the global financial crisis. Tax revenues fell away, while government spending remained on its nominal growth path of more than 8% per year.
The deficit jaws have not closed since then, widening further during the Covid-19 lockdowns of 2020-21. Between 2009 and mid-2025, national government expenditure has grown by an annual average of 8.3% (equivalent to an after-inflation growth rate of about 2.8%), far more than the slow-growing economy could fund.
Growth in tax revenues lagged, growing by an annual average of 7.2% over this extended period. And so between 2015 and 2025 national debt grew by a debilitating 15.6% a year on average. Smallish budget deficits became highly leveraged.
But there is something more than budget deficits that has increased the interest cost of funding the growing debt. The average time to maturity of newly issued national debt was allowed to increase. This significantly increased the cost of funding the national debt.
Longer-term rates of interest on RSA debt are consistently higher than on shorter term debt. An RSA 20-year bond now offers 12.18% per year, compared with less than 7% paid on a three month treasury bill. Between 2010 and 2025, the difference in yield on a 10-year SA bond and a three-month treasury bill has averaged more than two percentage points a year, while the difference in yield between a 10- and five-year bond averaged more than one point per year.
Yet between 2010 and 2019, the time to maturity of the average SA bond in issue increased consistently from 120 to 190 months. It has since declined to about 140 months, still a large number by international standards.
The size of the market in rand-denominated SA debt is a large strategic advantage for SA that has been frittered away by paying unnecessarily for very long-term money.
The reason for extending the maturity structure of SA debt was to avoid rollover risk. That is the apparent danger of having to repay debt or issuing new debt at a time when the market might be highly unsympathetic. But SA debt of all durations is constantly being rolled over given the amount of debt in issue that is maturing regularly. Avoiding rollover risk was a bad and expensive idea.
Should the market be temporarily closed, the Reserve Bank can always be called upon in an emergency to provide cash for the government. It is one of the great advantages of being able to issue debt in your own currency, the quantity of which you control — unlike foreign debt you can default on. The size of the market in rand-denominated SA debt is a large strategic advantage for SA that has been frittered away by paying unnecessarily for very long-term money.
The risk that SA may be forced later or sooner to monetise its debt to inflate away its debt burden is the reason SA long-term interest rates remain so high. These high yields compensate lenders for more inflation expected and an accompanying weaker exchange rate.
That SA prefers to issue long-dated debt at a high fixed rate gives a poor signal about the official belief in the sustainability of fiscal policy and the prospect of inflation falling rather than rising. Yet that is what it has done, making previous long-term borrowing at high nominal rates ever more expensive for taxpayers, whose incomes are now rising at a slower rate.
The task for any successful coalition-led budget is to ensure that SA lives within its means; to balance the books by limiting wasteful spending through authoritative expenditure reviews, which up to now have been woefully lacking. And by walking the lower inflation walk — borrowing significantly more at the short end and rolling over long term debt for shorter varieties.
Accepting the risk that inflation could drive borrowing costs higher would help discourage inflation and government spending.
• Kantor is head of the research institute at Investec Wealth & Investment. He writes in his personal capacity.
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