IT is easy to be alarmist about government debt data, and equally easy to politicise the figures. But given every context, and every nuance, the figures that are piling up for government borrowing from the State Bank are now assuming alarming proportions. Before going into a detailed discussion of the data itself, and what it tells us, it is important to emphasise the previous government helped create the present situation. When the fiscal year began in July 2018, the total stock of outstanding government borrowing from the State Bank stood at Rs3.667tr, which is where the previous government left matters. Ideally, this figure should be as close to zero as possible towards the end of the quarter, so things were far from ideal in July. Very quickly, it shot up to Rs5.247tr as the interim government had to borrow heavily to continue financing its operations. But then, it dropped sharply, as the interim government retired its borrowings steadily, and by August, it returned to Rs3.37tr.

After that, it began climbing again, touching a peak of Rs6.859tr by November. This is a dangerous level and can fuel inflation, so every expectation was that it would soon fall equally fast as the government moved to retire this amount. The only way to retire it would be through commercial bank borrowing, via debt auctions, or through increased inflow from tax revenue. But both those options failed, as one after another debt auction showed a tepid response from the banks, and tax revenues fell far short of their target. From the peak in November, government borrowing from the State Bank fell briefly, by Rs1.89tr in December, but began its precipitous climb once again. As per the latest data, it has now hit Rs7.647tr, more than double where it was when the fiscal year ended, and when the PTI government was sworn in. There is no way to spin this other than as a deep and growing fiscal failure. A government has three options to raise funds to pay its bills: it can raise taxes, borrow or print money. Each option has a cost. Printing money is the worst of these options because it debases the currency and fuels inflation. And this is the path the government is on currently. Bringing down this stock of government borrowing from the State Bank should now be a critical mission in the remaining months of the fiscal year.

Published in Dawn, January 28th, 2019