There are two metrics against which to measure the health of government finances. The first is the government debt level as a share of GDP. The second is the budget balance, which measures the difference between what the government spends and what it earns in revenue and taxes. When government spending exceeds what it earns in revenue and taxes the difference is called a budget deficit, but when revenue exceeds spending it is called a budget surplus.

When the African National Congress (ANC) came to power, it inherited debt levels of around 50% of GDP and a deficit of around 4.5% of GDP. Over the subsequent 13 years, the debt level was cut nearly in half to 28% of GDP and the deficit was eliminated to become a surplus.

That was astonishing, given the liberation-era backdrop of the ANC having been exiled in East Germany and the former Soviet Union. What possessed it to cut debt and reverse the deficit was a warning from Nelson Mandela that the economic mess it was inheriting from the country’s last white administration was so severe that, without reforms, the government would soon be standing, begging bowl in hand, in front of Western financial institutions begging for handouts. If that occurred, national sovereignty would be lost and the budget speech would ultimately be dictated by Washington.

It was that understanding that, in the main, drove the financial prudence of the early ANC administrations, the results of which are set out on the chart below.

The chart also shows that after 2008 the pattern in the data reversed. Debt levels have nearly tripled as a share of GDP and the deficit is today a multiple of the country’s rate of economic growth. Last week, The Common Sense editorialised that it was a disgrace that the country was today seeking bailouts from the World Bank, completely ignoring the Mandela warning.

Critics of the ANC’s early fiscal prudence accused the party of prioritising fiscal pragmatism over the delivery of social services. That is quite false. The savings on the government’s interest bill, as debt fell and interest payments declined, were redirected into the social grants programme. Service delivery efforts were extremely successful, with data from electricity provision to housing and water provision showing steep improvements in the basic living conditions of millions of people. Tax receipts also rose as tax rates were cut, a counterintuitive but well-understood relationship among thinking people.

It helped greatly, of course, that investment levels drove the rate of economic growth up to an average of 5.4% between 2004 and 2007, but that was itself partly a function of confidence from investors that the government had state finances so well under control.

The chart below, which shows the number of social grants paid plotted against the deficit level, makes this broader point on how well the government did at first to match improving state finances with expanding social support services.

It shows how, between 1994 and 2008, welfare access was expanded very rapidly even as debt levels were curtailed, a fully sustainable model of a development state. After 2008, debt levels took off but welfare grants paid expanded more modestly at first before rocketing after 2020 as the Covid-19 R350 grant was introduced. But the post-2008 pattern points to an unsustainable model, and one that places the current government on a collision course between shoring up the country’s economic fundamentals and financing the living standards of millions of poor people. On the current track, the one will have to later overwhelm the other – the choice is simply which.

Either welfare and social spending get cut to reduce the deficit, or the deficit is pushed higher and higher to sustain social spending. The latter option will trigger very high rates of inflation and a collapsing currency, meaning that it really is not an option at all.

As policy-makers look around for what to do, the example is already on the record. They need to replicate what the ANC secured between 1994 and 2008, when a growing economy and rising tax revenues coincided with the conservative management of government finances, thereby allowing for vastly expanded social services and welfare support.