Mixed views over national debt

BabuK · 2013-01-05T13:30:53+00:00

As the government gets busier allaying public fears over the rising national debt, facts and the general situation on the ground may paint a different picture. It may be recalled that for the past one year a section of the public, notably the non-governmental organizations (NGOs) and politicians have been raising concern about the soaring public debt. The annual government financial audit reports for the year ended June 31, 2011 -- released by the National Audit Office of Tanzania (NAOT) on April last year reveals that the national debt had reached Sh11.4 trillion, up from Sh10.5 trillion in 2009/2010 financial year. According to the Controller and Auditor General Ludovick Utouh , the debt had increased by Sh 3.9 trillion, equal to 38 per cent attributing to public borrowing from banks, mainly the Bank of Tanzania (BoT). But economic experts state that every time national loans increased, they often led to economic instability in the country. However, they say there was nothing good or bad with the debts; it all depends on the wisdom of the administration. But they also allayed public fears that there was nothing wrong if the government took the loans to construct dams, railways, canals, factories, roads and other infrastructure, then the productive capacity of the nation goes up, leading to economic stability. However, if the debts were raised for consumptive expenditure at the expense of the national productive capacity, then that could lead to economic instability. When external loans are used for economic development, they have a healthy effect on the economy, but if they are used for consumptive purposes or for waging a war, they then become a burden on the community Normally, internal loans are raised from the central bank, commercial banks, and the people living in the country. They also warn that internal debts raised to cover consumptive expenditure would lead to inflationary pressure in the economy. The nature of borrowing in Tanzania is that the government borrows from the countrys commercial banks to pay civil servants salaries. An Executive Director with the Economic and Social Research Foundation (ESRF) Dr Bohela Lunogelo says the Government should borrow for infrastructure, not salaries. He says the economic logic about debt is principally that if it is necessary to borrow, it is money from outside that should be borrowed which should then be invested in the construction of infrastructure as this would later facilitate economic dynamism, which helps the government to collect more revenues as the industrial and services sectors expand. With this revenue, he says the government can then pay public servants salaries. And since our banks have excess liquidity when the government borrows from them it also helps them to do business. When the government reaches a position that even domestic revenues should be directed at investment projects it will have estimated the capacity of the banking sector to lend (as we know many roads are being built using domestic revenue). He says there would be a problem if government borrowing squeezes out the private sector from credit, but as you know this has not prevented the private sector from borrowing. He says that, at another level, what should be looked at is the ratio of debt repayments for the local loans, and that the annual foreign debt should not exceed 50 per cent of national income. Dr Lunogelo also allays public fears on the debt trend, saying, as you know we have not reached a dangerous debt to income ratio. In simpler terms. our borrowing is still within acceptable matrices internationally I am sure many are surprised at borrowing in order to pay salaries, To educate a layman about these issues, he says it is necessary to start from the question what are we doing with tax revenue? The answer: transportation infrastructure as well as energy, education and health, so as to place firm foundations for the economy. It is right for a head of family to use his money to hire a tractor so as to cultivate his farm, but for four months before harvesting he borrows flour from a shop as well as money to pay labourers in his farm! But he knows that after harvesting he will have the ability to pay the food debt as well as the labourers payments debt! But if he was borrowing to entertain his friends that would be abnormal. In much the same way, it is important for analysts to focus on how the government debt is being utilized. Dr Lungoelo provides further that there would be a real problem if the government borrowed to pay for luxury expenditure or unnecessary expenses. He says to pay public sector employees wasnt a luxury or auxiliary cost .public servants are needed to supervise development projects, oversee the peace and harmony, teach our youth so that we get engineers and doctors from them, all of them important for a strong economy. This is like a head of family deciding to borrow in order to pay his farm labourers so as to raise productivity in his farm knowing this will enable him to be food self sufficient and get more money! On Thursday, a non-governmental organization -- Tanzania Coalition on Debt and Development (TCDD) -- warned the government over the rapid increase of national debt which, it said threatened the national economic stability. According to the NGO, the current national debt now stands at Sh22 trillions, out of which the external debt stood at USD 10.5 billion (Sh 15.9 trillion) and internal debt is USD 3.2 Billion (Sh 5.1 trillion). According to TCDD, the external debt had increased by USD 456.1milion, or 4.4 percent for the period of one year from October 2011 up to 2012 while the internal debt had increased by Sh 513 billion. TCCD Executive Director Hebron Mwakagenda noted that the internal debt was increasing rapidly because the government has started borrowing from local commercial banks which charged higher interest rates all for paying salaries for civil servants. However, Deputy Minister for Finance Janeth Mbene counters that the country was still creditworthy and that the countrys borrowing was still within acceptable matrices internationally. SOURCE: THE GUARDIAN

Thread starter BabuK
Start date Jan 5, 2013

BabuK

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Mixed views over national debt

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