Lessons from South Korea, Taiwan, Singapore and Malaysia
Several countries have used borrowing strategically to drive economic growth and development. These countries, including South Korea, Taiwan, Singapore and Malaysia, have invested heavily in infrastructure, education and healthcare, and provided incentives for private investment in key industries. These investments have led to rapid economic growth and an increase in living standards. However, the borrowing strategy also comes with risks; such as the potential for high levels of debt. For example, in 2020 South Korea’s debt to GDP ratio was 44.3%, Taiwan’s was 33.3%, Singapore’s was 110.2% and Malaysia’s was 60.7%. Despite those debt levels, these countries have managed to maintain economic growth and stability – demonstrating the importance of using borrowed funds strategically to invest in areas that will generate economic growth and create jobs.
In contrast to the successful borrowing strategies of countries like South Korea, Taiwan, Singapore and Malaysia, Ghana’s experience with borrowing has been fraught with challenges. The Ghanaian government has borrowed over GH¢480billion since 2017 – taking the debt stock to almost GH¢600billion and leading to a debt-to-GDP ratio of 98% in 2022. Government’s borrowing has largely been to finance infrastructure development such as roads, bridges and hospitals. However, the borrowing strategy has been plagued by mismanagement of the borrowed funds; thus leading to a debt crisis that has put the country’s economy in a precarious position.
South Korea
In the 1960s, South Korea was a poor and undeveloped country with little infrastructure, low levels of education and limited industrialisation. To address these challenges, the South Korean government implemented a strategy of borrowing heavily to finance productive investments in areas such as infrastructure, education and industrialisation.
During this period, South Korea borrowed heavily from international lenders such as the World Bank and International Monetary Fund, as well as from private lenders. By some estimates, South Korea’s borrowing amounted to as much as 10% of its GDP annually.
However, the borrowed funds were used prudently and strategically – with a focus on investments that would generate economic growth and create jobs. For example, government invested heavily in infrastructure, building roads, bridges and ports to facilitate transportation and trade. It also invested in education; expanding access to schools and universities, and training a skilled workforce.
Furthermore, government encouraged private investment in industries such as textiles, steel and electronics, by providing incentives such as tax-breaks and low-interest loans. This led to the emergence of a robust private sector that drove economic growth and employment.
The result of those investments was a period of rapid economic growth that transformed South Korea into an industrial powerhouse. Between 1960 and 1990, the country’s GDP grew at an average annual rate of 7.7% and its per capita income increased more than ten-fold. Government’s prudent use of borrowed funds played a crucial role in this transformation.
In summary, the high levels of borrowing in South Korea during the 1960s were used prudently to finance productive investments in areas such as infrastructure, education and industrialisation. The result was a period of rapid economic growth that transformed the country into an industrial powerhouse. This demonstrates the importance of using borrowed funds strategically and responsibly to generate economic growth and improve the standard of living for citizens.
Taiwan
In the mid-twentieth century, Taiwan was a poor and underdeveloped country with a largely agricultural-based economy. Its government recognised the need for economic development and implemented policies similar to those of South Korea; borrowing heavily to finance investments in infrastructure and education, and providing incentives for private investment in industries such as electronics and textiles.
Government invested heavily in infrastructure, building roads, bridges and ports to facilitate transportation and trade. It also invested in education, expanding access to schools and universities, and training a skilled workforce. The focus on education and human capital development helped to create a pool of highly-skilled workers that was attractive to foreign investors.
Furthermore, government encouraged private investment in industries such as electronics, textiles and petrochemicals by providing incentives such as tax-breaks and low-interest loans. This led to the emergence of a robust private sector that drove economic growth and employment.
The result of these investments was a period of rapid economic growth, with Taiwan becoming one of the ‘Four Asian Tigers’ alongside South Korea, Hong Kong and Singapore. Between 1952 and 1980, Taiwan’s GDP grew at an average annual rate of 7.3% while its per capita income increased more than ten-fold.
In addition, Taiwan also became a hub for high-tech manufacturing – with companies such as Acer, Asus and TSMC becoming global leaders in their respective fields. Government continued to invest in education, research and development to support the growth of these industries.
Today, Taiwan is a prosperous and developed country with a high standard of living and a thriving economy. Its success story demonstrates the importance of using borrowed funds strategically and responsibly to invest in areas that will generate economic growth and create jobs. The focus on education and human capital development, combined with incentives for private investment, helped to create a dynamic and resilient economy that has weathered economic challenges and remained competitive in the global marketplace.
Singapore
Singapore is often cited as one of the most successful examples of a country that has used borrowed funds strategically to drive economic growth. In the 1960s, Singapore was a small, newly-independent country with few natural resources and a struggling economy. Its government recognised the need to attract foreign investment and stimulate economic growth, and hence implemented a series of policies focused on infrastructure development, education and healthcare.
Government invested heavily in infrastructure, building an efficient transportation system that included highways, ports and airports. This helped to attract foreign investors, who were impressed with the country’s efficient and modern infrastructure. In addition, government invested in education – expanding access to schools and universities, and focusing on developing a skilled workforce. This helped to attract high-tech industries that required a skilled labour force.
Government also provided incentives for private investment in areas such as manufacturing and finance, including tax-breaks and low-interest loans. This helped to create a thriving private sector that drove economic growth and employment. As a result, Singapore became one of the wealthiest nations in the world, with a per capita income that is among the highest in the world.
In addition, government invested in healthcare; building modern hospitals and providing universal healthcare coverage. This helped to improve the standard of living for Singaporeans and attract foreign talent to the country.
Today, Singapore is a thriving global financial centre and a hub for high-tech industries such as biotechnology and electronics. Its success story demonstrates the importance of using borrowed funds strategically to invest in areas that will generate economic growth and create jobs. The focus on infrastructure development, education, healthcare and incentives for private investment helped to create a dynamic and resilient economy that has remained competitive in the global marketplace.
Conclusion
The mismanagement of borrowed funds in Ghana has been characterised by corruption, inefficiencies and a lack of transparency and accountability. There have been reports of inflated contracts and misappropriation of funds meant for specific projects, leading to incomplete projects and wastage of resources. In addition, some of the borrowed funds have been used to finance non-productive expenditures – such as paying salaries and servicing existing debt – instead of investing in productive sectors that would generate economic growth.
The mismanagement of borrowed funds has led to a debt-crisis that is affecting the country’s economic stability. The high debt levels are leading to increased debt-servicing costs, which are crowding out spending on social services and infrastructure development. In addition, the high debt levels are making it difficult for government to borrow at favourable rates – leading to higher borrowing costs and reducing the country’s ability to invest in productive sectors.
The debt-crisis in Ghana underscores the importance of using borrowed funds strategically and ensuring transparency and accountability in the borrowing process. The experience of other countries, such as South Korea, Taiwan, Singapore and Malaysia, shows that borrowing can be an effective tool for economic growth and development if used prudently. However, this requires effective governance and management of the borrowed funds to ensure that they are used for productive purposes that will generate economic growth and improve living standards for the people.
The writer is an Economic Policy & Financial Analyst
