The severe economic consequences of the Covid-19 pandemic will cause an already bad fiscal situation to become even worse, with the government’s main budget deficit sure to reach more than double last year’s 6.7% of GDP. Equally, it should surprise no-one if the gross debt load races past 80% of GDP this year, and keeps rising to levels far exceeding the IMF's 70% “danger” flag for emerging markets.

Yet when finance minister Tito Mboweni committed in his June 24 supplementary budget to advance growth-boosting reforms and to rein in spending to tackle the ballooning debt burden, fixed-income investors were sceptical. This credibility failure is evident in the steep slope of the bond yield curve, indicating that investors’ concerns about public debt sustainability in the longer term have, if anything, increased. If actions by government cannot turn that around in time, there could well be a case for the Reserve Bank to play a role in bridging the credibility gap in the short ter...

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