Appreciably,
the Executive arm of Government, the Cabinet led by the Prime Minister, has
many expert voices at its disposal, economists and financial analysts that will
demand that all public borrowings be directly linked to growth in the economy,
traditionally measured by Gross Domestic Product. GDP is the monetary value of
all the finished goods and services produced within the country's borders in a
specific time period, estimates are commonly used to determine the economic
performance and standard of living of the whole country and to make
international comparisons. The question therefore is “How would any proposed
borrowings affect GDP?”
The
public must know and understand: Public Accounts are cash based and borrowings
are recorded by the Auditor General as Revenue, which aims to offset any
anticipated deficit. Physical Assets, such as; Lands, Roads, Buildings,
Equipment, etc., owned by the people, play little to no role on the nation’s financial
status, because it cannot easily be sold or mortgaged. Hence, money spent on
Recurrent Expenditure; public sector salaries, operating equipment,
maintenance, etc., and the so-called, Development Program; constructing and
outfitting hospitals, courts, police stations, community and sport grounds, etc.,
although contributing value to the public lifestyles, does not increase
revenue.
Borrowing
or deficit financing, to increase cash flow, to balance the budget, pay
estimated recurrent expenses and fund the development program, is standard but
not ideal and fails to grow GDP or diversify the economy. The best way would be
to pay estimated recurrent expenses and fund the development program by means
of Taxes and Non-Tax Revenues. With earnings generated from investments, also
known as Capital Receipts, funding a budget surplus or savings to further grow
GDP and diversify the economy. Noting that, Taxes and Non-Tax Revenues will
increase without rate changes by adding more companies and more sustainable
jobs.
Borrowing
to consolidate debt and reduce interest charged on such debt by taking full
advantage of cheaper money or low interest rates, is excellent cash flow
management but adds very little to economic expansion. Borrowing to build
infrastructure, for social benefits or living standard improvements, will
augment physical asset values, adding more operating and maintenance
expenditure, increasing needed cash flow but still would not generate the
needed economic growth. Borrowing to develop or expand an industry or sector
with projected growth potential, will decrease cash flow needs as new revenues
are realized, simultaneously increasing physical assets as is needed by such
industry or sector and the surrounding population, and ultimately, transferring
that portion of debt servicing along with maintenance cost to the industry or
sector participants, while reducing the overall public debt.
Not
having access to unallocated funds reduces the Executive’s ability to develop
or invest in revenue generating industries or sectors, which can contribute via
taxes and lessen the need for future borrowings. Once a cabinet policy
impacting on public money is made, borrowing and the ability to repay needs a
detail analysis, which should be undertaken and presented to the public by an
independent Office of Budgets appointed by the Head of State and removed, as
best as possible and ideally, from the influence of politics. Noting that the
Division of Budgets is presently part of the Ministry of Finance and such money
bills are presented to the Parliament and made public by the Minister of
Finance, immediately polarizing the issue.
Rationale
T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.
