Cheap and sleazy

When it comes to financial jiggery-pokery the incumbent government is in a league of its own. Since coming to power it has borrowed heavily, and is now massively indebted. Inevitably big debts show up in the public reporting of government finances. With debt ballooning and an inquisitive not to say censorial media chewing at the coattails of the finance minister the government decided to move the fiscal goalposts by redefining what public debt actually was. Amendments to the Finance Act 2017 will have the effect of understating the debt by the not insignificant sum of Rs2 trillion. This is the second time there has been a change in definition in the last year and not unreasonably it is being labelled as ‘window dressing’ by sceptical commentators.

This may appear to be little more than semantic juggling, but the implications go wide and deep. Loans cost money, there is no such thing as free money and under the original 2005 FRDL law, amended in 2016, public debt should not be more than 60 per cent of GDP. With that figure now being exceeded remedial work was indicated and the finance minister came up with the idea of re-visioning the equation by bringing in the ‘gross versus net’ definition, a consequence of which is to wipe Rs2 trillion off the public debt and take it back down below the constitutionally-required level of 60 per cent — though the actual debt still remains on the government books. Much of this will be lost on those without a degree in economics but it will not be lost on the financial gurus of the International Monetary Fund (IMF) that have oversight. The capacity to service existing debt — paying the markup — is eroding all the time and there is no sign that the government intends to change its ruinous borrowing policy. You can never borrow your way out of debt. Message ends.

Published in The Express Tribune, June 17^th, 2017.

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