The government’s recently released annual borrowing plan (ABP), while useful, does not lay out a strategy for reducing the country’s nearly $10 billion national debt, a leading financial expert asserted yesterday.
Chief Executive Officer of the Fidelity Group Gowon Bowe said the most telling part of the plan showed that the government is using the majority of the $1.85 billion it hopes to borrow this fiscal year to refinance $899.7 million in maturing debt securities and loans as opposed to paying them off.
“While an annual borrowing plan is useful, that is only useful in the context of what’s your long-term plan, because if I look at what is telling in this plan, which is that there is a tremendous amount of borrowing that is taking place that is refinancing existing debt, what that is saying in laymen’s terms is that we’re borrowing to pay back borrowing,” he told Guardian Business.
“And that’s something that we have to address. If you personalize it, we can’t borrow $10,000 from the bank and then borrow $10,000 from you to pay them back. And that’s effectively what the
government is doing.”
The ABP is a key component of the recently enacted Public Debt Management Act, 2021, which laid out the mechanism for increasing transparency and borrowing predictability in debt operations.
It is also expected to be framed within the context of the government’s medium-term debt management strategy (MTDS) which the Ministry of Finance said won’t be available until November.
Bowe said while the ABP is a useful document, it recounts much of what is already known about the nation’s current financial position, and is only useful in the context of a wider strategy.
“What the annual borrowing plan lays out is what needs to happen in the next 12 months. Well, that would be fine if we were talking about a debt to GDP of 20 percent, because we’d be far below the critical point of 70 percent. But now that we’re pass the 70 percent marker, we need to have a full discussion over the entire amount and what is the strategy in terms of managing that,” Bowe said.
“Management means refinancing, management means repayment and I think that’s where the emphasis should be, because we need to get into a mindset where we are going to start reducing the outstanding debt and not continually hoping for an increase in GDP to say that the ratio looks good. If the debt is continually increasing, it means that we have not yet reached that point of actually repaying our bills.”
He continued, “When you look at what is in the debt management legislation, it really leans on a debt management strategy and the debt management plan document for the medium term and if you read this document, it actually references that document that won’t be available until November and the reason why that is what you would expect as being the initiating document, is because that is what is going to have the current position and the current maturities into the foreseeable future.”
Bowe said what is done in the next year will not solve the country’s debt crisis and a comprehensive approach to reducing debt is needed.
“Given that we are almost at the maximum point of our debt capacity, in order to really appreciate a debt management strategy it has to be looking at the entire debt and how we are going to manage that and bring it back to a level that is acceptable and manageable. This document is a part of a puzzle, it is not the cornerstone of a puzzle,” he said.
The government passed a financing resolution last month for $1.85 billion this fiscal year to cover the shortfall between revenue and expenditure, which are estimated to come in at $2.24 billion and $3.19 billion respectively in 2021/2022.
The post Bowe: Govt’s borrowing plan doesn’t adequately address nat’l debt appeared first on The Nassau Guardian.
source https://thenassauguardian.com/bowe-govts-borrowing-plan-doesnt-adequately-address-natl-debt/
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