Anticipated Financial Plan for 2022: International Energy Agency Suggests Debt Manipulation and Maximum Borrowing Limit to Mitigate Soaring Government Debt
Restructuring Nation's Debt: IEA Proposes Bold Measures
Listen up, folks! The Institute of Economic Affairs (IEA) is pulling no punches when it comes to our nation's ever-growing debt. They're proposing a severe debt makeover, including restructuring our external public debt and implementing borrowing or debt-ceilings in the annual Appropriations bill.
According to the IEA'sstatement, our debt stock has been pushing past the prudent 70 percent debt-to-GDP threshold for a lower-middle-income country. And they're not happy about it! The 2021 mid-year budget review showed our public debt stock climbing from 76.1 percent at the end of 2020 to 77.1 percent of GDP at the end of June 2021.
But don’t fret – the IEA wants action, pronto! They believe the current debt stock can be reengineered to ease the service burden. Thiscan be done by restructuring or refinancing the debt to lengthen the maturity profile and replace more pricey debt. In addition, they suggest negotiating discounted debt buybacks with creditors when possible.
It's already happening, in fact! Under their Medium-Term Debt Strategy (MTDS), the government has been working on restructuring its outstanding debts to keep borrowing costs low. One key strategy has been to elongate the tenor of bonds and loans. According to the 2021 to 2024 MTDS data, the Average Time to Maturity (ATM) for bonds has seen an overall increase from 8.2 years in 2017 to 9.4 years in 2020.
And what about that borrowing- or debt-ceiling in the annual Appropriations bill? The IEA argues it'll be a lifesaver. By requiring Parliamentary approval to exceed the limit, as is the case in other jurisdictions, they believe the government will have to rein in the debt, which could balloon and overwhelm the budget with escalating interest payments.
But hey, we've got to be smart about it! A borrowing- or debt-ceiling can bring fiscal discipline, but it also poses risks like government financing constraints, increased political and economic uncertainty, and even credit rating damage. That's why it's crucial to have strong institutions, clear procedures for adjustments, and a commitment to transparency. The balance between fiscal prudence and growth needs is a delicate act, but with careful design, we can make this debt restructuring work!
[1] World Bank Group. (n.d.) Fiscal rules for effective public financial management. Retrieved from https://www.worldbank.org/en/topic/publicfinance/brief/fiscal-rules-for-effective-public-financial-management
[2] International Monetary Fund. (n.d.). Fiscal rules and practices. Retrieved from https://www.imf.org/en/Topics/fiscal/Fiscal-Rules-and-Practices
[3] OECD. (n.d.). Fiscal rules – Analysis and design. Retrieved from https://www.oecd.org/gov/budgeting/fiscal-rules-analysis-and-design.htm
In their report, the Institute of Economic Affairs (IEA) suggests implementing a financing policy that includes borrowing or debt-ceilings in the annual Appropriations bill, as a means to combat the growing debt stock that exceeded the prudent 70 percent debt-to-GDP threshold. To ease the service burden, they propose restructuring or refinancing the debt to lengthen the maturity profile and replace more pricey debt, similar to the government's Medium-Term Debt Strategy (MTDS). However, the IEA acknowledges that a borrowing- or debt-ceiling, while promoting fiscal discipline, could also pose risks like government financing constraints, increased political and economic uncertainty, and credit rating damage, emphasizing the need for strong institutions and transparency. [World Bank Group, International Monetary Fund, OECD]
