It was only a matter of time before the government was forced to borrow money from the domestic banking sector to finance the deficit, and plans have indeed been set in motion to get Rs4.5 trillion over the next three months. This means Pakistan is now locked in a very unhealthy spiral where it must, despite its best efforts, keep borrowing again and again just to pay back old debt and keep the deficit from bloating out of control. This is not going to look very nice when the finance minister sits down for some hard talk with the IMF next month, because it very clearly shows that the government’s projections about the budget have gone a little sideways right at the beginning. In addition to everything else, government borrowing from the domestic banking sector is also going to crowd out the private sector from the lending regime, and its offtake from the banking sector is now necessarily going to shrink just when the government needed it to step forward, ramp up production and exports, and earn precious foreign exchange for the country. But such are the risks you face when you are dependent on borrowed money to survive yet feel confident enough to try and spend your way out of your troubles, just like the government is trying to do with its expansionary budget for the year. It also ought to be something of a concern that one of the government’s primary vehicles for raising fresh debt is the already fragile and suffering bond market. So while it goes about interfering in the money market and taking what was meant for the private sector, it must also be very careful that the economy doesn’t lose investor confidence and upset yields and prices of the bonds. Then it would face even more problems when it goes to borrow even more from IFIs (international financial institutions) as well as friendly capitals; some of whom have also been a little upset with us recently because we tend to take their financial assistance for granted at times. The economy is poised very delicately and it will take very careful maneuvering to avoid the axe and continue with the populist budget. *