CAG Cautions Meghalaya That The Trend Of Borrowing May Lead It To A Debt-Trap

SHILLONG: 3rd April 2023 (PTI Source)

Despite Meghalaya's ambition to become a US$ 10 billion economy in the next five years, the state may be on a dangerous path towards a debt trap, warns the Comptroller and Auditor General (CAG).

The CAG has reported a worrisome trend in Meghalaya's borrowing, which has increased by over 63% in the past five years, resulting in an overall debt of Rs 15,481.09 crore in 2021-22. With such a steep rise in borrowing, it's clear that Meghalaya's economic growth could be threatened by the looming risk of unsustainable debt.

According to the CAG report, a significant portion of Meghalaya's debt, about 73%, is internal and comprises market loans, RBI’s means and ways advances, financial institutions’ loans, and special securities issued to National Small Savings Fund. Public account liabilities make up 23% of the total debt, while the remaining 4% comes from loans provided by the central government. The CAG's report highlights a worrying trend of reliance on internal borrowing, which could exacerbate the risk of Meghalaya falling into a debt trap.

Meghalaya's overall debt has seen a significant increase in relation to its Gross State Domestic Product (GSDP) percentage, rising from 32.14% in FY 2017-18 to almost 41% in 2021-22, according to the Comptroller and Auditor General (CAG). The CAG report also reveals that the outstanding debt at the end of the 2021-22 financial year rose by 13.67%, amounting to Rs 1,862.35 crore. With the continuous rise in debt and the GSDP percentage, the state may face severe economic consequences if it fails to address the borrowing trend.

The CAG report for Meghalaya also reveals that the internal debt of the state amounts to Rs 11,244.83 crore, which is almost 94.39% of the total outstanding public debt of Rs 11,912.82 crore. Furthermore, the interest payment for 2021-22 amounted to Rs 699.55 crore, a rise of Rs 112.66 crore compared to the previous year, as the government borrowed Rs 1,608.00 crore in the form of market loans.

The CAG report highlights a worrying trend where a substantial portion of fresh market loans is being used to service existing debts, indicating a potential debt trap in the future. If Meghalaya continues to rely on internal borrowing to pay off existing debts, it may hinder the state's economic growth and development.

According to the CAG report, the Meghalaya state government's practice of taking out more loans to service its existing debts has been noted with concern. Despite this warning, Chief Minister Conrad Sangma has assured the state's assembly during the budget session that there is no reason to be concerned about the possibility of a debt trap.

The rising debt trend and reliance on borrowing to pay off existing debts pose a significant risk to Meghalaya's economic growth and development, and it's essential for the government to take appropriate measures to address the issue. Failure to do so could have severe consequences for the state's financial stability.

During the budget session, the Meghalaya Chief Minister dismissed concerns about Meghalaya's rising debt trend, stating that borrowing is a standard practice for governments, and there is no need to worry. He further explained that the Indian government has set limits and a format for state governments to take out loans.

Sangma also expressed optimism about Meghalaya's economic growth, projecting that the state's economy would reach US$ 10 billion (Approx. INR 80,000 Cr.) in the next five years. However, the CAG report indicates that the state's borrowing trend is unsustainable and could lead to a debt trap, calling for a more cautious approach towards borrowing and debt management.

The CAG report has highlighted that the GSDP’s public debt % (percentage) in Meghalaya has exceeded the limit set by the BMA (Budget Management Act) and the MFR (Meghalaya Fiscal Responsibility), standing at 31.49 percent instead of the prescribed 28 percent. This development raises concerns about the state's ability to service its debts in the future, which could lead to a debt trap.

The report suggests that Meghalaya must prioritize growing its GSDP to generate sufficient revenues to service its debts and avoid a potentially catastrophic financial crisis. Urgent and effective measures need to be taken to address the rising debt trend and ensure the state's financial stability in the long run.