The latest IMF tranche is not meant to be a signal to contract fresh debt, which is what the present government seems bent on doing. It should be remembered that the debt being contracted is by the government of a party whose members were righteously condemnatory of the previous government for the debt it was contracting. The government is not content getting a World Bank loan; it is also going to float a sukuk bond issue, both apparently on the strength of the IMF tranche.
The problem with World Bank loans is that they come with conditions, and carry a political cost. The problem with going to the money markets is that, while they do not impose political or economic conditions, they do charge the sort of interest that forces the government to go, cap in hand, to the international financial institutions like the IMF, which will impose conditions. This means that the cycle will be repeated. The government’s debt has reached 98 percent of GDP, and the way things are going, it is just a matter of a few years before all tax revenue is swallowed up by debt servicing.
Apart from austerity, the government must also work on enhancing tax collection, and stop giving exemptions to anyone with access to the Prime Ministers, who asks. The necessary reform of the tax collection machinery is also essential. The consequences are horrendous. It hardly bears thinking about what will be the political conditions imposed when the ordinary expenditure of civil government and the military are met by borrowing. Military spending is particularly sensitive, with the country already having paid a high political price for the privilege of buying essential defence equipment.
The government should also realize that there might well come a time when it is not possible to borrow any more. There is a possibility that this might come on the present government’s watch. It might realise that its orations against corruption and hand-wringing about the loot of previous governments will not serve it when it happens.
