Monday, May 6, 2013

Spend what you have

Given the utilized resources in the country, are able to raise Rf10 billion as government revenue within a year. That’s the maximum we can spend on all the expenditures of the state; including the executive, judiciary, parliament, and other independent institutions. We cannot afford as a country to spend beyond Rf10 billion in any year given the present circumstances. However,  when we are able to increase the number of economic activities, by making new investments on resorts, hotels, and others, then we may be able to raise additional revenue through tax, and then we can spend more. Trying to increase existing tax rates will not be a solution, as private businesses will be discouraged to make new investments, and also it may affect our tourist arrival, as our tourism product is not as inelastic as we may think. 

Our present behavior of spending beyond our means, have led to accumulation of short term debt exceeding Rf6 billion from local banks. Recently, government has also started raising finance from private businesses by selling T-bills to private companies other than commercial banks. Again we are restricting the amount that would have been invested for future incomes. What is more alarming is that government is borrowing at more than 8.5%, for such short-term.

We cannot continue like this for long. We need to reduce expenditure, so that it can match with what we get through tax revenue.