Borrowing binge


The borrowing binge of the government of Pakistan seems to be never ending. The authorities have relied greatly on the SBP to fulfill its burgeoning appetite for budgetary lending one that has had devastating repercussions for the economy. And thus, with the borrowing binge, the private sector crowding out has stifled investment in the economy that has dropped to all time lows in over a decade. In only the first half of 2012, the government borrowed in excess of Rs818.91 billion from the banks, against Rs285.951 billion in the corresponding period last year. The increase in government borrowings from banks has also been accompanied by a decline in Net Foreign Assets that is having a debilitating effect on the local currency. While the current regime has focused on expanding trade horizons, a welcome initiative one must realise that increased trade cannot be sustainable when the local industry is being choked with the export competitiveness of products being compromised. The weakening rupee certainly will render the exports cheaper however it will also increase the import bill. With the vast bulk of necessities being imported, and imports in-elastic Pakistan will have to rely on increasing exports. Given the worsening power shortfall where industrialists are now exploring opportunities in neighbouring countries and setting up their plants there due to a conducive business environment, increasing the exports does seem a hurculean task at present. The government must focus on broadening the tax base to satisfy its thirst for budgetary spending, while at the same time take steps to encourage the industries, not through subsidies but through an appropriate incentive mechanism.