Old habits die hard
Budget time is near, which means the government will scramble to balance its books. And that means it will set off on another borrowing spree. The finance minister was successful enough to get the Fund to agree to downward revision of growth, and be slightly more understanding on the deficit considering our counterinsurgency needs, etc, but reserves still need to be jacked up. Currently at $12.55b, they need to be raised to $15.4b by the end of the fiscal, and there’s a rush to gather the remaining $2.8b.
That, to an extent, explains the $1.5b requested from the Jeddah based Islamic Development Bank (IDB) in addition to the rollover of a $1b loan asked of good friend China. Once again exogenous injections will serve budgetary support purposes and help finance crude oil imports. They will also, as the finance ministry likes to put it, take some pressure off the rupee-dollar parity, just like the mysterious $1.5b that suddenly came from Saudi Arabia did, and artificially jacked up the rupee. But the practice has started rubbing the business community, not to mention economists, the wrong way. The currency is now overvalued and that is hurting already depressed exports, especially in an environment when the GSP Plus facility has come under pressure.
Also, it’s not just the rupee that is deflating the kitty. And it’s also not that the government takes to unnatural borrowing just around budget time. It has long been addicted to borrowing even in order to run its day to day affairs. And beyond the usual forward repayment pressure, this addiction with debt also keeps the private sector crowded out, which spells the death knell for investment in the long run. Already the security situation has chased away foreign investment. Local participation is minimal owing to an enlarged government presence in the money market. Needless to say, unless the government overcomes its habit of borrowing to balance figures, our economic troubles and dependence on more borrowing will not go away.