Wishing everybody a happy new year, and hope that it'll be a successful year for all of us. As we enter 2009, the world is facing its worst economic recession since the Great Depression of 1930s. The American economy is facing deflation as the price of oil has declined to a record low of 37 dollars after hitting a high of 146 dollars in July 2008. It is predicted that price of oil may fall to even 20 dollars within this year, meaning deflationary fears throughout the year. Prices of major commodities are also falling, and major commodity traders like New Zealand, Australia, and Canada all fear economic slowdown within this year.
At a time like this, what's happening in our economy? We sure are not facing deflation. Government expenditure (especially current expenditure) is accelerating each month, with it the government fiscal deficit. Last three years of fiscal mismanagement has led to unsustainable levels of government deficit. It is estimated that the total fiscal deficit in 2008 exceed Rf5 billion. As part of this deficit was financed through the central bank, inflation is on the rise.
The european and the world economy has entered a deep recession, and tourism revenue is expected to decline in 2008. However, the newly elected government seems determined to fulfill all its campaign promises, and the people have all their expectations at the highest level. Current expenditure is expected to inflate further with the ever increasing political posts being announced almost every week. Newly formed independent institions and commissions also demand higher expenditure for their salaries and running costs. All these expenditures - mostly unproductive, and politically motivated, aren;t doing much good to the economy and the productivity of the country. When the economy is not growing, the living standard of people will not increase.
For all these reasons, and many more, it is critical that the President and the officials in the President's Office involved in formulating policies understand the economic reality of the situation our country is at present. They need to understand the implications of their policies to the economy. More specifically, the fiscal deficit and the resulting government debt of the country.