Global Senses

In the US, public deficit is currently 5.8% of total GDP and expected to rise to 10% by 2053. The growing public debt is a major problem shared by all the major economies in the world. Despite massive spending on defense and infrastructure, numbers indicate that  the US spends the most on Medicare and Medicaid, and these spendings will only continue to increase. This is for a country that is not known for its social security infrastructure. In fact, both Medicare and Medicaid are only meant for very poor and very old people. The rest find their own ways to cover their medical expenses. For other major economies with strong social security programs, the implications might even be larger.

With the continuing improvements in technology, this means modern medicine is increasingly becoming expensive. On the other hand, people are living longer than ever. This means governments will keep spending even more. This is without even the concerning increase in conflicts and wars, which will prompt equally massive spending on defense and military. Furthemore, global crises do happen more often than previously thought. Covid-19 proved it. Climate change is on the horizon. 

I know. The solution seems simple. Just increase government revenue. But it’s far from simple actually. Increasing taxes or cutting spending comes with a massive political price. Very few politicians are willing to risk popular support for a good long-term policy. Such has been the catalyst of many financial and economic crises. As a recent example, look at how the pension reform bill to increase the retirement age from 62 to 64 in France led more than 1 million people to the streets to protest. No administration would be willing to suffer hundreds of times the consequences, especially not when they are vying for reelection.

But how does this affect developing economies, including Rwanda? Well, for starters, 63% of Rwanda’s 2023/2024 total budget is domestic revenue, with the remaining 37% being external grants and loans. For a growing economy, it is always plausible for revenues to increase at a faster rate due to economic growth. However, one thing is certain. Public debt crisis in developed economies is going to massively affect the “external grants/loans” portion of the national budget. Rwanda was named the fastest growing economy in 2023 by the African Development Bank, and that momentum has to continue. However, that means there’s an urgency to find alternative ways to raise public finances to make up for the imminent loss in external sources. 

Part II coming soon.