Keep a close watch on economic data

Editor,Refer to the article “Foreign trade on import of capital goods goes up” (The New Times [Business], December 10). If the import of capital goods translates into a greater production base and, in time, a substantial rise in exports, then the current import-to-export ratio will continue to be manageable for some time. But it is important for people to remember that a country can finance its imports only from: proceeds from its own exports, inward investment flows, external borrowing (from banks, international financial institutions, institutional investors or from the financial and capital markets, i.e. Rwanda’s recent bond issue), aid (or in many developing countries from Diaspora remittances). Borrowing and the interest charges that go with it are viable only if the debt enables you to generate sufficient export revenue to cover the interest costs and, eventually, the principal. Aid can and has been withheld for any number of reasons, mainly political, and should therefore not be counted on with any certainty. Yes, inward investments require a satisfactory infrastructure, both physical (transport network, reliable energy supply, etc.), social (adequate medical facilities, schools, and amenities of life, a legal system that provides a degree of certainty in dispute adjudication, i.e. that does not determine legal outcomes arbitrarily), and human capital (a ready supply of educated and skilled labour in diverse fields). It is therefore right to look at the large amounts of money (whether borrowed or internally generated) that go towards creating or improving infrastructure not as just costs but as investments in our productive and thus our export capacity (or to cater to our internal consumption needs, which also reduces our import bill and brings down the trade deficit). But we urgently need to scale up our economy very fast even as we diversify it substantially from the current bias towards simple trading – if we are to bring down this serious imbalance (10:1) in our import to export ratio.Government has put in place the necessary building blocks for our private sector to take up the mantle, but we do not see much change in our business class so far. They remain largely infused with a trading outlook. A diversified economy – which is the only resilient economy – cannot be created by government; only the private sector can do that.All a government can do is put in place the enabling environment so that individuals and the private sector can take up the relay. Let us hope that, maybe, the younger generation will take up the challenge.In brief, if we begin to see the currently heavy import bill relative to our exports begin to translate into greater exports or a gradual reduction in our import bill without a concomitant drop in the level of domestic consumption, then we will know that today’s high import bill relative to our exports has begun to bear fruit.Until then, I hope our economic managers are keeping a very close eye on the wheel to ensure that, as a country, we are not taking on more debt than our export capacity enables us to pay down comfortably, without getting ourselves into financial distress.Mwene Kalinda, Kigali***************I thank The New Times for this brilliant analysis and wise recommendations. We used to hear that states never go bankrupt... What about Greece, USA…? We should watch out our expenses and especially our borrowings.Joe, Kigali

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Keep a close watch on economic data