This was an increase of Sh207bn in one month, a datum which pricked the ears of economic observers, pointedly musing that this was reckless to say the least.
Not everyone would agree, as it all depends on how the cash is to be used, if put to productive use, or in ‘conference tourism’ as of old.
Stating out the components of the surge in the debt stock, the MER presentation said that government securities, namely Treasury bills and bonds issued for Budget financing in August 2017 amounted to Sh542.3bn, of which Sh357.7bnwere Treasury bills and Sh184.7bn as government bonds.
This was just a month, albeit dizzying, of how the debt stock has been rising over the past year, as on an annual basis, the debt stock rose by Sh2.4trn from August 2016 to the month under review. It was an increase of Sh207.8bn from July 2017 and by Sh2,380.2bn as from August 2016.
While critics focus on sizes of debt stock surge and put up nearly fictitious info-bytes as to debt per capita levels, what our children and grandchildren will have to pay, the real lesson can be gleaned elsewhere.
It is in the relative importance of the debt stock and its economic impact, visible or invisible to the naked eye, which helps to grasp in a rapid way how economic growth is tailored, and hopefully this can be added to the design, policy planning.
When such lessons can’t be learned, an economy slides on and on until external shock visits upon it, and is redesigned.
There is something marginally comparable between the Sh542.3bn debt collected in government negotiable assets in one month, and the Sh700bn in public sector corporate deposits in commercial banks withdrawn mid-2016 and placed in the Bank of Tanzania.
The monthly amount is anywhere around two thirds of the deposits figure, and yet economic effects of the two sets of measures are incomparable.
In the first case, of the taking in of Sh542.3bn in Treasury bills and government bonds, one likely effect is taming inflation but little credit impact.
Using that money in purchasing government stock can distantly be said to have had a credit impact in that were it directed to fixed deposits in banks it would boost credit somewhat. It would depend on what term deposit is given in each case, as the longer the deposit the more it can be cycled for loans. It is rather hypothetical.
Public sector corporate deposits were, on the contrary, a nearly fixed or permanent facility at the disposal of commercial banks, which they could lean upon in lending knowing that they had ‘call deposits’ in case their cash flow situation tightened up.
Removing the corporate deposits pushed aside plenty of credit demand for which the reason for being accepted was that compulsive repayment by a certain date, with no reference to chances of realization of collateral, was low at the time that public sector corporate deposits remained in commercial banks.
Thus, while the total amounts removed are comparable to money mopped up for the Treasury in market operations, the net impact is not comparable.
Free funds in investors’ hands flowed to the government for project implementation, with little impact on credit, while removing Sh700bn/- led to a drying up of credit, and foreign trade nosedive.