Prescient Investment Management, a company overseeing about R130.8 billion in assets, is taking an 'overweight' position on South African government bonds despite fiscal constraints and stubborn inflation. This decision comes as the South African government faces increasing debt and is being forced to borrow more money than planned. Economists believe that this trend is unlikely to be reversed in the near future. The government will need to borrow an average of R552.7 billion per year over the next three years to finance the growing gap between expenditure and tax collection, refinance maturing bonds, and fund the Eskom debt-relief arrangement. To address the shortfall, the government is expected to use a combination of treasury bills, Sukuk (Sharia-compliant or Islamic bonds), debt, and floating-rate notes [fc6da80b].
Despite these fiscal risks, Prescient Investment Management sees value in South African government bonds and is favoring them in its investment strategy. This indicates a level of confidence in the country's ability to manage its debt and navigate the challenging economic landscape. It remains to be seen how this investment approach will play out in the long term, given the ongoing fiscal challenges faced by the South African government [fd9f1e16].
