TOO MUCH BORROWING…

Apr 28, 2017 Editorial, Features / Columnists

The economy is heading in the wrong direction and the fallout will trickle down to hurt the citizenry through higher interest rates on loans and higher costs for goods, especially imported items, due to the devaluation of the dollar.
Excessive borrowing without raising revenue to service the very debt created from said borrowing will cause the Government to keep spending beyond its means and thus build an economic house of cards that will inevitably collapse. It should be a wake-up call for the administration to take corrective measures.
If the government continues with this listless economic policy, a future downgrade of the currency is inevitable. In order to prevent this from happening, the Government needs to take ambitious leaps to increase revenue earnings, exports, foreign exchange, foreign direct investment and production, and lower unemployment.
The key risks for a falling economy and a declining dollar stem from, but are not limited to, the persistent fiscal deficit, the staggering debt, a lax approach to earning additional foreign exchange, a worsening current account balance and illicit financial inflows.
When the dots are connected by the wider public, they will see that a declining dollar and the ailing economy would eventually translate to higher unemployment and higher costs for imported goods. It could also deter future local and foreign investment, entrepreneurial activities and further restrict export diversity.
Not to mention that earnings of foreign exchange will also be stymied, and the nation could find itself in a rot. A collapsing economy and a devalued dollar would deem the country riskier for both local and foreign investment. It could prompt greater capital flight, where locals will invest more of their finances abroad rather than locally. Foreign investment will be dried up, thereby lowering foreign earnings which will obviously have a negative impact. These factors will make it much more difficult for the government to obtain loans from the international agencies, and if it does succeed in getting loans, the interest rates will be extremely high, which will limit future savings and investments.
The significant increases in borrowing since 2015 have contributed to a staggering debt of over 60 percent of the country’s gross domestic product (GDP). If such borrowing continues, it will drastically affect the poor, in that the government will not have the resources to finance development projects, improve the economy or create jobs. It will be forced to reduce spending on education, healthcare, social services and infrastructure, all of which are in decay and need the financial support of the government.
In addition, the consistent underperfor-mance and unprofitability of many State-owned enterprises, such as the Guyana Power and Light (GPL) and Guyana Sugar Corporation (GuySuCo), have placed a severe financial burden on the State to support their losses. State entities that rely on government bailouts will have less incentive to be efficient and self-sufficient, since they know that they will get public funding.
Divestment and the privatization of these entities will improve operations, efficiency, cost effectiveness and represent a better use of resources. However, like everything else, a balance must be found. The challenge facing the government is that it must meet its financial needs without excessive borrowing, reduce the national debt, and increase economic growth.
The government should move with haste to privatize any state corporations which are draining the treasury. But the mere mention of privatization automatically triggers considerable opposition from some within the government, because they see privatization as selling off the government’s precious assets. Some experts believe that entities like GPL and GuySuCo should be public/private ventures, with the government retaining a majority stake to ensure that the interest of the country is preserved. Indeed, privatization and reducing the national debt would provide the fiscal space the government needs to improve the economy, stabilize the dollar, create jobs and more than likely provide a better life for all.

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