, portfolio flows averaged 1. 27 % of gdp, of which general government comprised 0. 197 percentage points ( pp ), public corporations 0. 004pp and all other flows 1. 066pp. from 2010q1 to 2019q4, total portfolio flows averaged 2. 9 % of gdp, comprising 2. 02pp for government, 0. 22pp for public corporations and 0. 65pp for all other flows. but when you know the money is coming anyway, it becomes much harder to insist on policy rigour. second, these flows permitted the build - up of a large sovereign debt position. debt, famously, is a troublesome form of financing because the lender shares relatively little risk with the borrower – unlike, say equity investments, where unsuccessful projects directly affect share prices and dividends. 20 sovereign debt is particularly problematic, because declining government creditworthiness also spills over to the credit profiles of firms and households. with time, it leads to higher taxes and lower public sector investment to accommodate higher interest payments. an unsustainable fiscal position can therefore become a drag on the whole economy. third, capital flows eroded potential growth. we often talk about the importance of institutions to growth, but debt can be used to weaken institutions by funding systems of patronage and corruption, driving out skilled and diligent public servants. many private sector firms will also follow the money, redirecting their efforts from productive enterprise. through these two channels, capital flows helped subvert the market incentives and competent bureaucracies that power modern economies. our macro framework delivered resilience through a floating exchange rate, low foreign currency debt exposures, and careful regulation of the financial sector. but resilience is not enough ; if you are going to absorb capital flows, you also need to get allocation right. huge non - resident flows into public sector debt can actually make this more difficult. today, we face the consequences. with too much borrowing, not much domestic saving and limited non - resident appetite for our assets, interest rates must rise to restore balance. the alternative is an inflationary balance of payments problem, which is plainly against the south african reserve bank ’ s mandate. this does not make the reserve bank popular, but facts are facts. we have gotten ourselves back in the trap we escaped in the mid - 1990s. for a discussion, see adair turner, between debt and the devil, princeton, nj : princeton university press, 2016. reflecting on this whole

sturzenegger, ‘ does it matter how central banks accumulate reserves? evidence from sovereign spreads ’, nber working paper no. 28973, june 2021. available at : https : / / www. nber. org / papers / w28973 agustin samano ‘ international reserves and central bank independence ’, policy research working paper no. 9832, 2021. available at : https : / / openknowledge. worldbank. org / handle / 10986 / 36483 olivier jeanne and damiano sandri, ‘ global financial cycle and liquidity management ’, bis working papers no. 1069, january 2023. available at : https : / / www. bis. org / publ / work1069. pdf in addition to these tools, we should consider our macro policy narratives. for a start, we need to rediscover the dangers of government borrowing. responsible policymakers never forget that fiscal debt is risky. but the nature of policy discussions is that while many claims are valid, some points get more emphasis than others. in the past decade, one such point was that fiscal consolidation hurts growth and is therefore self - defeating. another was that higher government debt levels were safer than previously thought. i have personally observed these claims justify sustained fiscal slippage in south africa. if we had felt the urgency of debt sustainability more keenly, we would have had a wiser conversation. we need a more responsible set of narratives around fiscal risks. 35 we also need to think more clearly about allocative efficiency. one of the strongest lessons i have learnt as a policymaker is that poor countries are poor not simply because they do not have money, but because they do not use money effectively. too often, there is a tendency to look at a problem, cost out a solution and focus on raising the cash. implementation is just a black box. but good policymaking starts with implementation and the financing need should reflect what can be used efficiently. indeed, one might cast the volatile and often damaging history of capital flows as a conflict between budget constraints and capacity constraints. capital flows provide spending power and can radically shift the budget envelope, but implementation capacity is stickier, and budgets can easily overshoot capacity. this point is relevant, once again, in the global dialogue about climate change justice and the financing that should be directed from rich countries to poor ones. there is a strong focus on costing the climate change impact for poor countries and