Neither a lender nor a borrower be.” Fans of William Shakespeare will recognise this as advice that Polonius, the main character in Hamlet, gave to his son Laertes. I’ve witnessed firsthand what can happen to families when financial disputes erupt, and the long-term harm these disputes can inflict on future good relations.
I’ve just finished the latest IMF report issued this month on the US economy which is presently growing at close to four per cent and unemployment is at levels not seems since the late 1960s. This at first sight seems to be fantastic news and everyone should be looking at how they can emulate this economic success. I thought it was worth considering what is driving this economic success story.
The key to the current strong growth in consumer spending, and economists see this because of the recent tax cuts. This initial boost from this $1.5 trillion tax cut package will fizzle out, and the IMF forecasts growth will slow steadily in future years, dropping to 1.4pc in 2023. We also must consider the impact these actions have on the debt the US supports.
I had a look at where we are today when it comes to debt in the US and, the IMF said the current policies will elevate future risks by increasing the government’s debt burden. The IMF suggests that to trim future deficits, the US may need to take politically painful steps such as trimming Social Security benefits, and imposing higher taxes on consumers. With US debt now above $21trn it accounts for one-third of the total world government debt.
Here in Bahrain, we are seeing a rise in gross government debt, and according to some economists this will result in the debt as a percentage of GDP passing the 100pc benchmark. This will result in Bahrain becoming the 20th country with gross debt above 100pc of GDP. Is this a bad thing? When you look at the other 19 countries there is a broad mix and there are three in the Middle East, five in Europe, three is SE Asia, two in the Caribbean, five in Africa and of course the USA.
It is not bad for governments to have debt but like individuals the level of debt needs to be managed. Many compare Bahrain with Singapore, and they are included in the number of countries with government debt above 100pc, and I’m not aware of anyone who is saying Singapore is a ‘basket case’. What is important is the confidence the lenders have, and today Standard & Poor’s credit rating for Singapore stands at AAA with stable outlook.
Now, Standard & Poor’s credit rating for Bahrain stands at B+ with stable outlook. Unfortunately, not as good as Singapore. All of us who are part of the Bahrain family, expatriate and local, needs to take ownership supporting the government in making Bahrain a great place to live and work. We have very strong economic growth similar to the growth levels in the USA, and the highest levels of economic growth in the region. Let’s all stop talking negatively, and get behind the change that is now underway to take Bahrain from a good country to a great country.