This archive report was first published on 19 November 2019.
The government's plan to raise the debt ceiling has raised eyebrows, with many questioning the wisdom of increasing borrowing limits. The move is seen as a reflection of poor financial management, with the National Treasury and Central Bank struggling to build interest forecasting capacity.
According to economists, intelligent finance managers opt for short-term debt when interest rates are expected to decline, and long-term debt when rates are expected to rise. However, the government's approach seems to be the opposite, with a focus on long-term debt that may not yield favorable interest rates.
The consequences of excessive borrowing are far-reaching, with the burden of debt falling heavily on the poor. As the government repays the debt through taxation, the rich benefit at the expense of the poor, leading to economic inequality.
Developing countries are particularly vulnerable to the effects of external debt, which can transfer wealth externally and reduce economic welfare. The mathematics of debt must be correct for it to be beneficial, and the government should only accept debt that improves productivity and is devoid of economic injustices.
Ultimately, the debt ceiling conundrum highlights the need for prudent financial management and a focus on economic development that benefits all citizens, not just the wealthy elite.
