Debt is a bit like chocolate. It’s good and probably does you no harm (and might do you some good) in moderate amounts, but too much can cripple you.
Indeed, anyone who has a mortgage on a home or has borrowed money to start a business will acknowledge that without borrowing, these kinds of investments would not be possible. Credit makes free market economies work. So why all the fuss about Bermuda’s national debt, especially in an economic crisis, when services have to be provided despite falling revenues and raising taxes, as Government learned two years ago, can be self-defeating? In those circumstances, increasing debt might well be prudent, especially if it is used for capital projects and infrastructure development hard assets that put people to work.
On Thursday night, Government MPs raised the debt ceiling by $200 million to $1.45 billion to allow for increased borrowing in the coming year. Premier Paula Cox defended the current borrowing on the basis that money had been spent in the past on infrastructure and some will spent on capital projects this year.
Ms Cox has also argued that Bermuda’s debt levels are not that high compared to other countries. Measured as a percentage of GDP, it is around 24 percent, which is lower than many countries. And Ms Cox also argues that it remains manageable.
There are several problems with this argument. The first is the sheer speed with which debt has grown since 2006 when it stood at $255 million. Now it is $1.5 billion. In the current financial year it has risen by 22 percent. And there is no sign that it will get any better, or there that there are concrete plans to either reduce expenditure or to increase revenue.
Even Government’s current projection of having to borrow $176 million in the coming year is not credible, since Government has consistently spent more than expected, and raised less in revenue. So the question is not just whether the debt is too much now; it is how much it will be next year or the year after that without a credible plan to balance the current account budget to at least cap the rate of growth. Then, at least, the borrowing would really be used for hard assets, and not to service the current debt, which is the case now.
Another way of measuring debt is to calculate what the debt per person is. For Bermuda, it is roughly $23,000 for every man, woman and child. That’s considerably lower than Greece, the poster child for debt, at $34,000, but not so far off Britain, at $26,000, and the US, at $29,000. Both are considered to have unacceptably high levels of public debt, and both have debt rising at less dramatic percentage levels than Bermuda.
Both also have more tools to increase economic growth than Bermuda the real problem with the Island’s debt. Bermuda depends on growth from tourism and international business, both of which are flat or growing very slowly. So revenue will not increase very fast naturally, and Government has failed to reduce spending.
The result, then, is more debt, and no signs of getting it under control. That’s an unacceptable burden to place on our children.
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