By Josef Kefas Sheehama
While not all debt is bad, as a country, we must recognize that it comes with significant responsibilities. As a result, debt financing benefits the economy. However, it is critical to maintaining a healthy level of debt. Otherwise, high levels of debt can lead to a financial crisis, which would be extremely costly.
To be honest, debt feels like a barrier. If I could remove that impediment, I believe I would be able to make more freely. If money evokes strong emotions in you, you are not alone. Everything significant in our lives is emotional. Our relationships, our work, and our money are all emotional. Even though the loan paid for our university education, we feel guilty when we consider our debts. We know rationally that getting the degree was a good decision, but it no longer feels good. Assume you are going to climb a mountain. You train for months, buy your gear and equipment, and then you get to the bottom of the mountain. You’re in a good mood. That’s how a lot of us feel when we are starting universities and applying for a loan. You may not fully understand how that’s going to impact the rest of your life but you are ready to go. You might start thinking about everything you need to do to keep going. The end of university can feel the same way. Now, you have a university education, but you also have debt. This is where it gets tricky because a lot of us fixate on all the feelings around how much there is left to do. In terms of a loan, that looks like thinking about what you have mortgaged, the interest on your loan, how much money you have to set aside every month to make a payment, and the kind of job you’d have to do to get where you want to go next.
Let’s take a closer look at that. When you talk about debt, it sounds like you want to start from scratch. Good debt is debt that provides a positive return on investment, whether in the form of financial value or quality of life. Furthermore, we will look at government debt in this section. Namibia’s gross government debt (total debt stock) rose to N$140.2 billion, or 71.0 percent of GDP. The extent to which the government can achieve fiscal sustainability, in my opinion, will be dependent on the implementation of spending cuts and accelerated growth-enhancing reforms. This is critical for sustaining the ongoing fragile economic recovery and should mitigate the negative impact of several headwinds, ranging from higher energy and food prices to a less accommodative interest rate environment. The government is determined to implement reforms aimed at stimulating demand through infrastructure investment; employment programs and tax breaks that should boost consumption; and modernizing network industries, which should eventually lead to increased production capacity. A country’s economy is always linked to the global economy via external economic activities such as foreign investment and trade. To attract FDI and spur economic growth, Namibia has established the Namibia Investment Promotion and Development Board and has introduced policies that include fiscal and financial incentives. As with most economic events, it’s difficult to predict precisely what the impact will be.
Furthermore, contrary to high-level criticisms of Namibia’s rising debt, I believe that government should intervene in the economy to solve market failures and transform the economy. In my view, Namibia should not hesitate to borrow if it wants to transform the economy into a production-based model. Thus, government debt, in one sense, has the revenue effect, and, in another sense, has the expenditure effect. This means that our borrowing produces different effects on the economy. However, the exact effects of borrowing will greatly depend on the sources of borrowed amounts. If loans are raised for productive purposes, scarce resources may be distributed rationally. In other words, resource allocation will take place to sub-serve national interests. Consequently, national income will rise. But if loans are raised to finance unproductive activities like repayment of loans, resources then may not be allocated optimally. Even then, the effect of public borrowing on consumer spending is likely to be less adverse. Again, public borrowing does not produce any significant adverse effect on investment. Thus, public borrowing can produce a favourable multiplier effect on national income. Furthermore, we need to understand that government debt is not necessarily inflationary. If the debt is used to raise income, employment and output, the inflationary effect will then be greatly minimized. But inflation, under the circumstance, is unavoidable.
Furthermore, government spending financed by public borrowing has the potential to lift the economy out of a slump. As a result, public borrowing is not always risky. On the contrary, in some cases, public borrowing is unavoidable. That is why modern governments borrow funds from a variety of sources. But one thing is certain: if the volume of public borrowing increases to an abnormally high level, the economy will become unstable. Borrowing benefits or borrowing objectives will then be defeated. As a result, public borrowing must be done with caution and prudence.
Borrowing is a common practice in this regard, but it becomes the worst of strategies when borrowed for consumption rather than production. It is even more devastating when the borrowings are primarily for debt servicing, with no practical measures or capacities for sustainability, let alone a possible moratorium on future borrowing.
As a result, government debt can be used productively for capital formation, increased national income, increased revenue generation, employment generation, and overall economic growth.
The rising level of public debt, as well as the corresponding rise in net interest payments, would be cause for concern, because as the burden of interest payments rises, the government will have less money to spend on other necessary expenditures, reducing the cost of required investments.
