T
o the investor, government debt is always appetising.
Unless something unusual happens, there is a guaranteed return on any investment involving a debt instrument issued by government. Our country is no exception, at least for government debt issued locally. It is sovereign and statutory and, therefore, payment is guaranteed.
If you look at the debt with private sector lens, the whole picture changes. Tales of bankruptcy and companies winding up are not new. New administrators move in quickly and take charge of the company to wind it down and pay off creditors.
The rest becomes history. Examples abound and you can list as many as you can. If unsure, just check winding up judgements at the High Court.
Unlike private debt, public debt is a liability to an entire nation. All taxpayers are responsible for repaying this debt. Taxpayers cut across different generations.
Even the unborn ones today already have some debt for them to pay. They just need to arrive and once that happens, repayment obligations are operational in many ways.
It is difficult to feel the pain of repaying debt for the simple reason that none of us gets a deduction from a pay cheque or from a bank account. I am sure if public debt were repaid like the way we incur different bank charges, or the rants we have over excessively priced utilities and data charges, our perspective of public debt would change.
Possibly, we could take a more militant approach and involve an accountability apparatus of unprecedented force.
So what? It is for the same reasons that those tasked with managing public debt do not care much about how much debt is accumulated. None of them is personally responsible. Besides, government does not produce loss and profit accounts or pay dividends to its shareholders in the way private companies do.
We can argue to the contrary though. That public services such as security, education and health are not excludable and our free access is akin to dividends. It may be right and wrong at the same time. It is wrong in the sense that we pay taxes to have such services delivered to us. Or someone somewhere pays taxes and we enjoy freebies of some kind. It is a call you can make.
Imagine if the main creditor of public debt was some loan shark? Any default can be punished heavily, but luckily it is easy to repay any maturing debt by issuing more debt. So, on goes the circus and to some extent governments survive. It is the modus operandi globally.
The only exception is that you can only do this within your economy and not beyond. Going international, you will need debt rating and the riskier you are the higher the interest.
Debt is not bad. It depends on what you do with the money. To see the extent of our debt I had a look at 2020/2021 National Budget. Something stood out very clearly. It helps one understand the magnitude of our debt stock and the need to walk a fine line to ensure that our debt is sustainable. Sustainability, of course should come with moving the country towards a middle-income status, an automatic jump in credit rating in international bond markets.
Our interest rate payments on debt are almost the same level with the whole budget of the agriculture. I think this is the best way to illustrate the magnitude of interest rate obligations emanating from public debt. To be debt free, it is the same as shutting down the whole Ministry of Agriculture, sending all its staff on unpaid leave for a year and curtailing all expenses such as Affordable Inputs Programme, research and extension to simply pay interest rates.
Sounds fictitious, but surely this is extreme academic discourse.
This should make all of us to carefully reflect on the extent of public debt. Precisely, debt is not a revenue equation with a negative but a serious governance issue.
Records indicate huge pilferage of public funds through fraud, money laundering, theft, corruption and subtly summed into financial crimes.
As this new government works its magic, I hasten to say that public debt is a serious issue but more important, the governance aspect of enforcing laws relating to financial crimes should be a priority. Priority can be tale forms of strengthening all institutions with manpower, technology, even creating special units for such crimes coupled with political will of the highest order.
That way our worries on debt will be minimised since resources borrowed can be prudently invested.
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