This is the warning being sounded by economist Dhaneshwar Mahabir who said Finance Minister Winston Dookeran failed to cap the escalating debt in his 2010/2011 budget package. Mahabir said while the country revenue exceeded expectations, government moves to increase expenditure could pose a challenge. "His collection rate improved given that some $41 billion was collected, however, he has increased the level of expenditure and unless he is able to fill this gap he would have to make some adjustments for the next budget. The minister would have to come to a balance very soon given that he cannot continue borrowing for the next five years, escalating the level of public debt and tying his own hands with outstanding interest payments."
Debt trap looming
From all indications Mahabir said the red flags were up and Dookeran needs to tread cautiously. "He is not looking at the debt trap. The debt trap is going to occur when he has to pay so much interest on that debt and the bulk of his tax revenues would simply go to debt servicing and very little would be available for the essential needs he would want to satisfy the population. He is not as cautious of the public debt as he ought to be. He needs to give himself a target of the amount of tax revenues he would like to see allocated to the public debt."
Cut back spending
Reiterating that the country's debt is at its limit, Mahabir said Dookeran needed to seal the cap now. "The minister has reached the limit of debt and needs to cap it now given that 10 per cent of government revenue is allocated to interest payments. He has to be cautious with respect to borrowing over the next three years. If in fact the economy stagnates, even though he provided major concessions to oil companies, he must be mindful that concessions do not create output, it is the wells. The minister has to take cognizance of the fact that the level of spending for fiscal 2011 may not be sustainable. He has to be looking at economies and efficiencies and areas which he would want to scale back and areas he may want to provide some kind of rationalisation for." (AGS)