Debt can be perceived as the quickest way to an expedient goal. ILLUSTRATION | NATION MEDIA GROUP No expression quite captures the prevailing state of affairs of emerging economies as the famous words uttered by Polonius in Act I, Scene III of William Shakespeare’s play, "Hamlet": “Neither a borrower nor a lender be: for a loan oft loses both itself and friend; and borrowing dulls the edge of husbandry (economy).”
The saying can be applied to daily realities as it includes a pedantic tone with a universal application. In economics, the quote is applied to caution the State against taking up a huge debt burden by pointing out the adverse effects of borrowing to the economy.
Debt can be perceived as the quickest way to an expedient goal. Economist Peter Warburton, in his book Debt & Delusions , notes that debt fosters immediate satisfaction of a need or want regardless of the current revenue.
In most low-income nations, the current expansion of debt is linked to infrastructural projects such as roads, railways and hydroelectric dams. The assurance of each loan agreement is that the debtor applies the funds to meet desired future financial returns.
Economic literature establishes a strong nexus between higher absorption of debt and the anticipated increase in economic output. Yet, in several emerging nations the expansion of debt is out of control and evidently outpaces the growth in national income.
IMF’s "Regional Economic Outlook on Sub-Saharan Africa" (April 2020) shows that in 2019, the average level of foreign debt as a ratio of GDP in sub-Saharan Africa was 57 per cent, contrary to an external debt sustainability threshold of 55 per cent.
From the report, seven low-income nations were in debt distress, nine States were at high risk of debt distress, whereas a couple of middle-income countries held high levels of debt.
Further to this, overreliance on debt from commercial sources had augmented debt servicing costs occasioned by higher exposure to stricter international financial conditions.
As a consequence, efforts by developing countries to tackle the Covid-19 pandemic have been hindered by existing debt payments and rising borrowing costs.
According to the Central Bank of Kenya’s Weekly Bulletin , the country’s total public debt as of March 2020 stood at Sh6.285 trillion. The share of external debt to aggregate public debt was Sh3.2 trillion (51.1pc), while the share of internal debt to aggregate public […]