Editorial

A word of caution

Funding short-term consumption with long-term financing is the very height of fiscal folly.

Editorial/editorial August 23, 2013

If the government starts using World Bank funding to finance this year’s budget, it will, in effect, be forcing future generations of Pakistanis to pay for this year’s electricity subsidies and bailouts of state-owned enterprises. PHOTO: FILE

The PML-N government’s almost single-minded focus on getting Pakistan’s economy back on track has won it many admirers and has led several global financial institutions to declare their confidence in the government’s stewardship. The latest institution to join this happy chorus is the World Bank, which announced that it will be increasing its development lending programme to $1.5 billion, almost back up to pre-2008 levels.

The World Bank’s support is no doubt welcome, particularly, since it is by definition focused on investments in Pakistan’s long-term infrastructure needs. It may be easy to take the easy money and use it to finance the deficit. We urge the government to resist that temptation. In the world of finance, there is a concept that the government would do well to remind itself of: matching the duration of assets and liabilities. Financing the construction of long-term assets with short-term borrowing is a highly risky proposition. Funding short-term consumption with long-term financing is the very height of fiscal folly. If the government starts using World Bank funding — which is almost entirely long term — to finance this year’s budget, it will, in effect, be forcing future generations of Pakistanis to pay for this year’s electricity subsidies and bailouts of state-owned enterprises. Islamabad’s approach to managing the national exchequer is more like that of a bean-counter whose sole concern is to balance the books somehow this year. That function is no doubt a necessary one, but no organisation can grow without visionary leaders who lay out financial strategy.

There is also the matter of donors and their own separate agendas. In the past, many of the World Bank’s suggestions have served Pakistan well. But others have not. If the country wants to truly have the freedom to select which of the global lender’s prescriptions it will take and which ones it will ignore, it should start by not needing their money in the first place.

Published in The Express Tribune, August 24^th, 2013.

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