BoN report a warning to Govt to curb unnecessary borrowing: Sheehama

By Confidente Reporter

Economist Joseph Sheehama says Bank of Namibia 2023 second quarter report is a clear warning that borrowing to fund government activities is not recommended and should only be used for exceptional circumstances.
In its 2023 second-quarter report, the central bank, according to Sheehama warns that it is not advisable to fund the government with borrowings.

However, despite the Bank’s apprehension about borrowing and mounting debt, economist Joseph Sheehama says the government should not be afraid to borrow to address market failings and reform the economy.

“If the government wants to transform the economy into a production-based model, it should not be afraid to borrow. Government debt has a revenue effect in one sense and an expenditure effect in another.
“This means that borrowing has varying effects on the economy. However, the sources of borrowed funds will heavily influence the precise effects of borrowing. Scarce resources can be distributed rationally if loans are raised for productive objectives. In other words, resources will be allocated to serve national interests, and as a result, national income will rise,” he stated.

However, Sheehama said if loans are raised to finance unproductive activities like repayment of loans, resources may not be allocated optimally.

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