Borrowing more than what is needed…Why!?

تم نشره في Sun 25 January / Jan 2015. 02:13 PM

By Jumana Ghunaimat

The government transferred hundreds of millions of dinars from last year’s loans, estimated at 400 million dinars, to the 2015 budget, to be spent during the current year.

The important question here: Why is the government over-borrowing, and increase the debt in amounts that it does not need? The transferred loans are redundant, and not borrowing them in the first place could have reduced the size of debt by those amounts.

It seems the reason, mainly, is the absence of a clear policy for the management of the debt issue, which is getting more complicated by the day. You find the government insisting on increasing electricity rates to repay part of the debt of the National Electricity and Power Company, over-borrow without needed, since it is transferring loans from last year because it might need it in the future.

Over the past year, the government signed several agreements to obtain foreign loans from different directions, and continued with its policy of borrowing from local sources. Meaning the government tried to loan from every source it found, so much so that the central government debt during the last year reached 1.38 billion dinars, and the net public debt around 21 billion dinars.

The government can interpret its appetite for borrowing by the low interest rates, especially for foreign exchanges, specifically those obtained by a US guarantee. The US government has agreed to ensure a guarantee of some US$2.5 billion, divided on two phases; the first US$1.5 billion in 2013, and the second as one billion dollars through 2014.

But even with the US government guarantee, this insatiable borrowing requires a stop to think - and maybe needs a new meeting of the Committee for Debt Management that little meets - in order to put an end to such behavior, which adds significant commitments to the country and the Treasury, as well as future generations, in addition to its massive threat to the concept of monetary and financial stability.

It is true that there is a regional and local circumstances beyond control, which led to increase in debt - especially the Egyptian gas outages for more than two years – but, as the numbers reveal, it seems that the current government is just taking the easy way out through borrowing, not thinking about the disastrous consequences of this policy, especially the serious consequences of increased debt on the present and future of the country.

The size of debt is a dangerous financial indicator that reveals the flaws in economic management; the same flaws that led to the sudden financial collapse of 1989.

Again, it is important to pay attention to debt management, which requires a solid mentality, thoughtful of the consequences of each step, and measure results. Being “smart”, gentlemen, it is not in obtaining loans unnecessarily, but to paid them off, reducing the value of the percentage to the GDP.

Perhaps we should implement the old public debt law, which was amended during the government of Samir Rifai, especially the item relating to adjusting the total value of the debt to the limit of 60% of GDP, while today it is more than 90% of GDP! This is the amendment that led to the uncontrollable appetite of borrowing by all subsequent governments, since there is no legal provision that sets a ceiling for debt.


This article is an edited translation from the Arabic edition