As Bhutan enters the fiscal year 2023-24, while there have been positive signs of progress, such as a reduction in the fiscal deficit due to increased revenue mobilization, Bhutan faces challenges with a projected widening fiscal deficit, driven by reduced grant estimates. The total public debt has risen to alarming levels, reaching 136.8 percent of GDP, primarily attributed to hydropower debt and domestic borrowing. This poses a significant threat to Bhutan’s fiscal health and economic stability.
In a world of ever-evolving economic landscapes, the significance of maintaining minimal public debt cannot be overstated. The global financial crisis of 2008 was a stark reminder of the repercussions of unchecked public debt, and as we stand in the aftermath of the COVID-19 pandemic, it’s imperative to revisit this topic.
Public debt is an essential financial tool for governments, enabling them to finance critical infrastructure projects, provide social services, and respond to economic crises. However, it must be used wisely, and its levels kept in check to prevent potential economic calamities. Minimal public debt serves as a fiscal safeguard, ensuring that the government can respond effectively to unforeseen shocks and maintain economic stability.
Minimizing public debt is a complex task, requiring prudent fiscal policies and effective management. There are several strategies governments can employ to achieve this. Firstly, reducing unnecessary government spending can help prevent excessive debt accumulation. This entails cutting wasteful expenditure, streamlining bureaucratic processes, and eliminating inefficiencies in public services. Governments must also prioritize revenue generation through fair taxation, closing tax loopholes, and promoting economic growth.
Furthermore, governments should be vigilant about maintaining a balanced budget, where expenditures do not consistently exceed revenues. In cases where deficits are incurred, these should be temporary and accompanied by a clear plan for returning to a balanced budget. It is also crucial to ensure that borrowed funds are invested in projects that will provide long-term economic benefits, rather than being squandered on short-term or politically motivated initiatives.
The perils of high public debt are manifold, and they extend far beyond the simple notion of financial liabilities. High debt levels can result in increased interest payments, which in turn divert funds from critical public services such as education, healthcare, and infrastructure. This can lead to a vicious cycle of diminishing public services, causing frustration among the citizenry and potentially leading to social unrest.
Perhaps the most sinister threat of high public debt is its potential to destabilize an entire economy. As debt accumulates, governments may resort to inflationary policies or further borrowing to meet their obligations. This can lead to a devaluation of the currency, rising inflation, and even a debt crisis that culminates in financial collapse. The fallout from such a scenario can be catastrophic, with long-lasting consequences for the nation’s economic health and the well-being of its citizens.
One only needs to look at history to understand the grave consequences of high public debt. The economic turmoil in Greece during the eurozone debt crisis is a poignant example of what can transpire when public debt spirals out of control. The ensuing austerity measures and social unrest had a profound impact on the country, demonstrating that the dangers of excessive public debt are very real and often unavoidable.
Therefore, it is not only in the best interest of the government but also the responsibility of the government to keep public debt at manageable levels. This is not an argument for austerity at the expense of social welfare or economic progress, but rather a call for prudence, accountability, and responsible fiscal management.
The importance of maintaining minimal public debt cannot be overstated. Governments must exercise fiscal responsibility to minimize debt, reduce unnecessary spending, and foster economic growth. The threat that high public debt poses to the economy and the nation is not an abstract concept; it is a tangible and real danger. As responsible citizens, we must hold our governments accountable for their financial stewardship and ensure that they adhere to prudent fiscal policies to secure our collective economic future.