DEBT NOT BEING USED TO STIMULATE THE ECONOMY : IS ALL THAT GLITTERS, GOLD? A STORY ON “DEBT”

‘’A debt shares the same characteristic with gold, it attracts, but is it really gold?’’ Come on lets mine!

Debt is without a doubt a stimulus tool for any economy and that is why the government fully supports individuals and businesses whose objective is to acquire loans for expansion. Debt should be used as a tool to grow the economy through further industrialization, value creation and employment creation however in all my years and in all the countries I have visited over the years, Mauritius has stood out as a special if not fascinating case in regard to Debt.

Let’s back it up to the year 1929 which was the year  the US stock market crushed on October the 28th. This led to the devastating period of The Great Depression starting a world-wide economic crisis and lasting till the early 1930’s. Industry suffered immensely from this unexpected economic somersault. In the year 1933 president Franklin D. Roosevelt assumed office of the Presidency of the United States and when he came into office, unemployment rate was at around 25% and one of his sworn mandates was to lower this significantly so in order to do that he had to encourage industries to increase capacity and employ more people which he managed to do successfully.

Businesses hardly have money lying around in their coffers to finance expansion and thus must take loans/debt from Banks. However, the first thing you think about before you take debt is the Payback/Interest and the US government identified that, so they allowed people and companies to deduct Interest due from the Tax they owe to the government and is still the case till date. Many people ask me why in the Statement of Comprehensive Income of a business we deduct Interest first before Tax, now you have your answer, it was a measure to stimulate industry and productivity which was to in turn reduce the unemployment rate.

Enough of world economics, back to our beautiful Island of Mauritius which defies all the rules of Debt acquisition. Most individuals and families in Mauritius get loans from the bank to fund their lifestyles which are usually overly fancy. We want to buy cars, build houses for ourselves and some to just add to our portfolio of Villas, all these assets as we call them are not assets at all, they are actually liabilities to be realistically frank. An asset is supposed to make you money and generate revenue for you and unfortunately the fleet of cars and villas being acquired by most individuals and business owners through debt are not assets at all as they require regular financing in themselves hence, they are liabilities in definition.

The people and the banks conjoined are setting a very dangerous precedence for the economy of Mauritius especially for the younger generation as all they will aspire to do is grow up to acquire a loan to finance purchase of smart phones, cars and villas not necessarily for business or to create jobs but for self-gratification. If the economy is to grow and if we are going to realize the vision of a successful Mauritius then our thinking, perspectives and habits really need to change and lean more towards development and industrialization as well as entrepreneurship.

I call upon the country as well as the various institutions within the economy to work together to ensure that resources are being used to secure a better future for the country through efficient resources allocation. The education system should also come on board to educate youths on Debt and entrepreneurship, and how they can use the various resources provided for whether financial or non-financial to contribute to their sustainable future.

Indeed, Debt glitters like Gold, but it is not really Gold.The whole story is centered on how we choose to use it, as a tool to make more money or as a tool to milk more money!

Tinashe Godwill Musiwedzingo
Bsc HRM, MBA* (Amity Institute of  Higher Education, Mauritius)