It comes as no big surprise that the economic benefits of the arms procurement deal could turn out to be far less than originally claimed by its backers. And given the weakness of the rand, it is also hardly surprising that the cost of the deal is expected to spiral from R30bn to R43,8bn.

The spin doctors wanted us to believe the defence package was a free lunch. But now it is clear it could be a very expensive meal. Performance guarantees, which are supposed to ensure foreign exchange inflows, have been secured for just 10% of the contract price, amounting to only R3bn. Auditor-General Shauket Fakie has rightly questioned whether this small percentage is adequate. Moreover, Fakie has uncovered a number of irregularities in the awarding of the contracts, and allegations of corruption persist. To make matters worse, Parliament heard last week that the existing defence budget is not sufficient to enable SA to take part in peacekeeping exercises such as the one planned in the Democratic Republic of the Congo.

For those inclined to pick butter above guns, the pressure on the defence budget is truly alarming. Still, SA should be able to demonstrate a military presence, and should have the capacity to take part in regional peacekeeping exercises. After years of scaling back, it is only realistic that defence spending takes a bigger slice of the national budget. Can a way be found for SA to demonstrate a military presence without putting the economy at major risk?

The extent of that risk was emphasised yesterday by international investment banks. JP Morgan, the biggest player in the rand market, cited escalating defence costs as a negative for the local markets, and raised the possibility that government could reconsider the deal. In the short term, there will be no direct effect on the currency and local interest rates, as offshore finance has been raised to pay for the equipment. But these loans have to be serviced. That means capital outflows. Offsetting inflows may well not be enough to cover them. In a worst case scenario, the resulting pressure on the rand could even tip the scale towards an increase in interest rates, knocking economic growth.

The defence package was structured in two tranches. The first, estimated originally at R21,3bn, is already being implemented and will run over eight years. The second tranche is optional, and was initially put at R8,5bn. It is inconceivable that SA would opt for this second tranche and government must acknowledge this without delay. It should also be as transparent as possible about the details of the offset deals, if some sustainable benefits are to be derived from them at all.

With acknowledgement to Business Day.