Civil
wars, insurrections, uprisings, protests, workers strikes, all are rooted in
the distribution of wealth. This is the responsibility of the nation's elected
executive; to design, adopt, fine-tune, implement and revise policies, which
would encourage and reward risk-takers' investment while, maintaining a
measured standard of living through employment and the uplifting of the
vulnerable in society. Investment, Employment and Social Benefits are the
opportunities essential for nation building. However, the nation's capability
to earn from its present or projected revenue streams, increasing productivity,
currently carries much less influence, when compared to the nation's power or
ability to borrow and, of course, service and repay the debt. In other words,
it is presently easier to borrow than to diversify.
Hence,
if revenues remain stagnant or falls, below recurrent expenditure, resulting in
mounting deficits, forcing new borrowings to balance the nation’s annual
budget, harsh pending cuts, will then trigger an inability to borrow or repay
placing the economy into a debt trap. The budgetary category titled Fiscal
Policy, allocated 28.20% of the nation's total expenditure up 11.16% YoY, comprises the
Ministry of Finance, Charges on Account of the Public Debt and Pensions and
Gratuities, must focus efforts on increasing productivity and revenue collection
while, reducing the nation's debt and debt servicing expense.
The
Ministry of Finance withdrew from
the Nation’s Heritage and Stabilization Fund, for the first time since the fund’s
inception, to subsidize projected revenue shortfalls, following many of the
world’s top, Oil and Gas, energy producers. The Ministry revised its annual budget mid-term
in an effort to reduce and align expenditure with projected falling revenues
and minimize borrowings. The Ministry reformed the Value added Tax regime for
better collection, also entered into new borrowing arrangements with local
commercial lenders to consolidate some short term, high interest debt and to
fund its recurrent cash flow needs. Following, the ministry embarked on a
so-called road show, to raise foreign currency debt to strengthen its reserves
and stabilize the value of its local currency.
Charges on Account of the Public
Debt
refers to the debt repayment– the repayment of principal amounts in full or in
installment and debt servicing – the interest charges and other fees associated
with the debt. The nation issues three types of debt instruments; Treasury
Bills – short term less than 365 days discount bills to finance Central Bank
operations, Treasury Notes – medium term 1-5 years discount notes to finance
Central Bank functions, and Government Bonds – long term durations for specific
and defined purposes. Such financial instruments can be privately held by
commercial lenders or publicly traded with clear transactional terms.
Pension and Gratuities, responsible
for the administration of Public Service Pension Schemes in accordance with
numerous pension laws, regulations and policies, refers to the nation’s
obligation to its public officers having served and retired with promises of a
calculated income for the rest of their, and in some cases their spouse’s, natural
lives.
The
Ministry of Finance, with 36.89% of the Fiscal Policy funding, most of which
services and repays debt; Crystallized Guarantees/Letters of Comfort the
original borrowing entity could not repay, the associated interest and Interest
on the overdraft held at the Central Bank, hopes to reduce this burden and stop
the issuance of any new Guarantees/Letters of Comfort. The ministry continues
to work closely with the Central Bank, the protectors of the local currency and
architects of Monetary Policy. The ministry again, intent to borrow and is
capable of doing so with the security of the nation’s Heritage and
Stabilization Fund. The question is will the new debt be used for recurrent
expenditure – deficits funding or to fund export intended development – attract
investment and create employment.
Charges
on Account of the Public Debt, with 45.51% of the Fiscal Policy expenditure, are
estimated to increase by 4.79% and growing if revenue remains flat. An
independent Office of Budgets, with similar non-political standing and respect
as the Centre Statistical Office (CSO), forecast additional deficit two to
three years before traditional revenue sources recover and adds; with expenditure
held flat and diversification efforts starting now, new sources of revenue, to
repay debt and debt servicing, is 6-10 years in the future.
Pension
and Gratuities, with 17.61% of the Fiscal Policy funding, obligated to be paid
on a timely basis, must undergo some reform to improve accuracy and
efficiencies.
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.
