DEFERRED FINANCING is a method used by cash-strapped governments to fund capital projects by issuing guarantees to contractors who are then able to get bank loans to carry out the work. The contingent liabilities thus incurred by the Government do not appear in the Budget figures presented to Parliament for approval and, in our view, this is contrary to the spirit of parliamentary oversight in fiscal matters enshrined in the Constitution.
If used sparingly, deferred financing becomes an "off budget" source of funding for a government anxious to start the construction of highways, schools or other politically desirable projects. If carried to extremes, deferred financing is analogous to the individual who goes on a spending spree using a credit card and who only makes minimum monthly payments.
Sooner or later the debt, capital and interest, has to be paid and may then be so large that it plunges the individual into bankruptcy. In the case of governments, deferred financing can seriously distort the official budget and increase the fiscal deficit account.
The Minister of Finance and Planning seems to be taking steps to face the reality of its reliance on deferred financing. It has issued a statement that it will include some $3.6 billion of government deferred financing in the estimates of expenditure over a two-year period. The total of deferred financing approved by the Finance Ministry seems to be $11.7 billion of which $6.6 billion has actually been committed or disbursed. The overall situation is not entirely clear as there are discrepancies between the statement itself and the schedules attached to it. Could it be that government, seduced by this all-too-clever "off the Budget" method of financing is now in over its head and will need to raise new loans to refinance the extravagance?
The ministry's statement leaves several questions unanswered and we believe the public is entitled to more and better particulars. If these are not forthcoming, we assume that Mr. Shaw, the Opposition spokesman on finance, will ask for them in Parliament where, for some time now, he has been warning about the extent of government's reliance on deferred financing.
THE OPINIONS ON THIS PAGE, EXCEPT FOR THE ABOVE, DO NOT NECESSARILY REFLECT THE VIEWS OF THE GLEANER.
