DEBT is the obligation which results from taking a loan. Borrowing money is a means of immediate gratification, consumption or investment, which we pay for later, and maybe for a very extended period of time.

Schoolchildren in England know that borrowing must be related to the capacity to repay, and that in turn is related to income and assets which can be turned into money to service debt. In the past, lenders would set an upper lending limit based on their judgement of capacity to repay, but in the modern world this has changed. Both borrowers and lenders seemed to have suspended reality, as is clearly evident in a number of instances.

The sub-prime mortgage lending, which was an integral factor in the global financial crisis, was reckless, with loans exceeding the value of collateral and the actual and prospective income of the borrowers.

While some borrowed excessively, many did because of irrational exuberance. These optimists assumed ideal future circumstances in a culture where people routinely use credit cards to spend ahead of earning.

Individuals, companies and governments all are susceptible to this seductive addiction of credit, borrowing and debt. The poor and the rich are similarly afflicted and can quickly become locked into a vicious cycle of borrowing for the purpose of repayment.

Ultimately, there is point where nobody will lend any more and repayment can only be achieved by severe deprivation. This happens when repayment takes so much of current income that the borrower has to lower his current standard of living or sell assets. Either way, the borrower becomes poorer, which defeats the purpose of borrowing.

Many individuals go bankrupt from excessive credit card debt. Numerous companies go out of business because revenue from investments did not materialise or because of a sudden escalation of interest rates. Several countries, either from mismanagement or adverse external events or both, have had to restructure their debt and temporarily lose access to further borrowing. Even before this point, a heavy debt burden deprives the borrower of control of their own affairs.

Happily, Jamaica has the proud record of never defaulting on its debt. But we are now forced to seek an International Monetary Fund (IMF) agreement to provide the seal of good macroeconomic housekeeping.

As a country we have learnt nothing. It happened in the late 1970s, leading to the trauma of the Non-IMF Path and general elections. It happened in the 1980s, after doubling the external debt in the first two years of that decade. No financial wizard or Fresh Look Team could patch up our relationship with the IMF.

It happened in the 1990s, when the lesson learnt was to borrow from commercial source and stay on the new Non-IMF-Non-World Bank Path.

If you survived the Titanic, you should know when a ship is in trouble. Yet, not us. Each new loan is hailed as a vote of confidence in the economic future of the country. We are borrowing to repay past loans and that means that the debt-funded economic policy has come to an end. It does not take a world-class finance minister to know this.

It’s now time for a new development strategy which is not based on perpetual borrowing. Reducing debt service and limiting public sector borrowing will cut interest rates and induce lending to the productive sector at affordable rates, thereby increasing investment.

This is the way to achieve growth and banish the oxymoron of “negative growth” and the statistical error of one per cent growth.