For quite some time, financial markets around the world have been mired in a crisis over sovereign debt. In Europe, debt crunches have broken out in Greece, Italy, Spain, Portugal and Ireland. No sooner has one country’s crisis been resolved than another one pops up elsewhere, and there seems to be no end in sight.
Most recently, the US has been embroiled in a debate over raising its debt ceiling. This kept financial markets worldwide on tenterhooks as the Republicans and Democrats stuck to their guns and refused to back down, and it was only just before the deadline last Tuesday that they finally reached a deal. Even though a compromise was reached, the US economy and its reputation were both badly dented.
On the face of it, Taiwan is a bystander that has not been directly affected by this global debt crisis, but when one takes a closer look at the true state of our national debt, it is hard to be confident that the economy can weather the storm and remain unscathed.
The sovereign debt crunches that have broken out over recent years may seem like a string of random events, but it increasingly looks like they are becoming a permanent state of affairs. According to figures published in the -Chinese-language Business Weekly, the total debt of governments around the world has soared 138 percent from US$18 trillion 10 years ago, to US$43 trillion today, while the global GDP has grown just 96 percent during the same period, from US$32 trillion to US$63 trillion. Clearly, government’s debt is growing faster than economies.
During the past decade, Taipei has not lagged behind in this global rush to borrow. Government debt in Taiwan, which stood at NT$2.8493 -trillion (US$98.3 billion) in 2002, is forecast to reach NT$4.9215 trillion by the end of this year, an increase of 72 percent.
The fastest growth in debt has taken place during the three years in which President Ma Ying-jeou (馬英九) has been in office, as his government has taken out loans of more than NT$400 billion a year for three years in a row. The central government’s outstanding debt has seen a net increase of NT$1.26 trillion since Ma took office, about the same amount of debt accumulated during the preceding eight years of the Democratic Progressive Party administration.
Ma and his ministers often say the country’s debt problem is not serious when compared with what is going on in Europe and the US. Their reasoning is that, for one, borrowing by the government has not reached or exceeded the legal limit and, for another, Taiwan has hardly any external debt. The legally defined ceiling for central government borrowing is 40 percent of GNP over the preceding three years.
Current central government outstanding debt extending more than one year stands at NT$4.9 trillion, which is 37 percent of the average GNP over the past three years — only NT$300 billion to NT$400 billion below the legal limit. If the Ma government goes on doing as it has done so far, borrowing at a rate of about NT$400 billion a year, then within a year it will find itself in the same sticky situation as the US government, with no option but to raise the debt ceiling.
How can anyone say that Taiwan doesn’t have a debt problem?
As if that were not bad enough, the debts listed above are only for the central government. If the more than NT$700 billion in non-profit fund borrowing and more than NT$600 billion in local government debt are figured into the equation, along with NT$15 trillion in hidden debt, then total government debt is already in excess of NT$21 trillion. (Although it should be noted that the Directorate--General of Budget, Accounting and Statistics does not include levy compensation for existing roads and unassigned payments for farmers’ health insurance deficits in its figures, so its declared figure for hidden debt is a bit less at NT$13 trillion). These figures mean that every Taiwanese is loaded down with NT$910,000 in government debt.