Instead of looking only at the level of South African bond yields, we should be looking at the difference in South African government bond yields relative to the emerging market average.

I'm becoming increasingly concerned that the precipitous state of South Africa's finances is under-appreciated within government circles. I can see why that may be the case: despite years of warnings and rating downgrades, the government continues to fund its budget deficit. In addition, 10-year bond yields are only marginally higher over the past five years. Therefore, the conclusion that seems to be drawn is that the South African government still has several years to consolidate its expenditure.

Unfortunately, this is not the case. Instead of looking only at the level of South African bond yields, we should be looking at the difference in South African government bond yields relative to the emerging market average. In 2015 (pre-Nene-gate), this was 1.5%. South Africa paid roughly 1.5% more to borrow for 10 years than the average emerging market government.

Since then local inflation has fallen by more than the emerging market average. Based on inflation alone, the spread should have compressed. Instead, it has widened and continues to get worse. After...