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WHEN the budget is in deficit, government must borrow by selling securities to individuals, corporations, financial institutions and/or other governments to finance that deficit.

If a deficit spirals out of control, it can threaten the financial stability of an economy and can be a huge drain on the amount of money that is available for investments for Gross Domestic Product formation and for the creation of jobs.

A fiscal deficit indicates that government spending is in excess of current revenue and public borrowing. It means government’s expenses are greater than the income and grants it receives. Really, there are two simple avenues that can put a handle on fiscal deficits: (1) government can either earn more money; or (2) it can make do with the money it gets by spending less. 

Unfortunately, making ends meet with the money government gets seems to be an impossible challenge for most governments. Governments simply cannot get enough money! People and businesses are always there to be taxed so that government can keep ‘earning’ to spend more money.

When the local economy has been taxed through the roof, domestic borrowing becomes the next best option available for government to fund its unlimited spending. Domestic borrowing in a small economy like Eswatini takes the limited amount of money available through the private sector to fund unlimited and non-priority public spending instead of funding real economic activities that can contribute to an increase in national output.

When the local individuals, corporations and financial institutions have no money to lend to government, external borrowing from other governments and international entities like the World Bank are there to keep a constant stream of cash-flow for government coffers. The problem is that government always has options to acquire more money to spend, and so has no serious incentive to cut excessive spending, especially on useless and non-priority expenditures.

In the past seven years the true surplus that the country incurred was in 2013 recording a healthy E1.467 billion. From there onwards, government has been on an expansionary fiscal policy wrecking up spending to a high of E21.779 billion in 2016/17 with an excess spending (deficit) of E6.842 billion (12.3 per cent of GDP). Net domestic financing in the same period has increased to E5.633 billion in 2016/17 and total external debt to E5.454 billion in 2017/18. With increasing deficits, government has no choice but to increase borrowing and taxes on the local economy.  At the same time, every month government has to set aside a significant amount of money (E526 million or half a billion Emalangeni) just for repayments on interests of the debts it acquires. The money it pays on interest could pay more than half of the wage bill on a monthly basis.

The opportunity forgone by acquiring all this debt is that government is using deficit financing for paying back the domestic and foreign loans just so it can continue with unsustainable spending instead of creating value for money in using public funds to finance public and private investments that could increase economic growth. Even though the government securities issued by the Central Bank of Swaziland (CBS) are considered a ‘safe’ investment for most of the individuals and corporations that buy these bonds, they actually do nothing to increase output, employment creation, and growth in the economy.

Essentially what is happening is that the private sector is taking money and handing it over to government so that it can shell out more money on expanding civil servants and the huge wage bill among all the other unsustainable expenditures that must be cut within government. Instead, the economy would benefit a lot more if the money would be directed to real investments in the economy that would lead to the production of goods and services and creation of jobs to expand the economy.

With these bonds issued by the CBS, people and businesses are actually pledging their hard-earned money to fund non-priority government expenditures for a meagre guaranteed 7 per cent annual return on their money.  The economy is so dead that entrepreneurs and corporates now see government securities as the best option to invest their money instead of taking a chance on the real economy to invest real and new enterprises that can create more value for money.

The reality is that government does not produce goods and services that people need for consumption to make the economy tick. In the same vein, we cannot expect government to create jobs and solve the unemployment challenges that the country faces. If the private sector happily gives away money to government, the private sector is also happily putting a stamp on the ballooning wage-bill as well as happily giving government the signal that it should continue wrecking up public spending because the private sector will be there to bail it out.

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