Rising external and internal debt puts the government in a precarious position. The problem is compounded because a) borrowed amounts are increasingly channeled towards non-development expenditure, b) the government’s own revenue generation capability – tax and export receipts – is severely compromised and c) reckless borrowing of today will have to be repaid tomorrow, putting the current account and currency strength in grave danger only to fund the government’s day to day functioning. That is not good.
Wherever there is debt, especially non-productive debt, there is sure to be austerity. And increasingly, as is seen practically across the world presently, those who consume the debt are far removed those whose labour is milked to pay for it. Governments overflowing with debt quickly form an addiction for free money (it’s not very likely they will hold power when time comes to pay the debt back). And however much they borrow, much more still will have to be paid back. The ‘going’ solution, of course, is public austerity, which means increasing taxes on the few that care to pay them to fund political ineptitude. That is unsustainable.
Pakistan, with its debt nearly doubling in the short time this government has held office, is now well down this particular, painful road. Soon, people’s cost of living will register unnerving advances because of the government’s stubbornness on the debt issue. Practically every day Islamabad borrows millions just for the government to function. Most of these funds are not invested. They will not engineer second round returns. Yet they will have to be repaid. Already, this wrong-headedness has undone a good year of first tight and then easy monetary policy. Sane heads need to prevail and the debt bubble deflated sooner rather than later.
