Stop the bleeding

During their interview with BBS TV last week, Lyonpo Yeshey Zimba and Lyonpo Wangdi Norbu went to great lengths to inform us that the so-called rupee crunch wasn’t a crisis. They told us that the situation was normal; that they’d been aware of it for a long time; and that they were in full control of it. They told us that we should not be worried, that we should not panic. And they warned us that any talk about a crisis “could be deliberate attempts to discredit the government.”

I’m not one to worry needlessly. But I’m not reckless either. So I try to piece things together, and when they don’t add up, I get worried. I get scared.

On the one hand we have the government telling us that everything is okay. But their assurances are followed by reports, only a few days later, that RMA’s short-term rupee borrowings have already hit Rs 9.7 billion.

Just four months ago, RMA’s rupee borrowings had peaked at Rs 11 billion (3 billion from GOI credit line, and 8 billion from an overdraft facility maintained with the State Bank of India). The government, at that time, sold US$ 200 million for Rs 10.3 billion and liquidated the Rs 8 billion SBI overdraft credit. So RMA would have been left with a loan of Rs 3 billion (GOI credit) and cash reserves of Rs 2.3 billion.

Now, four months later, RMA’s short-term rupee borrowings have already climbed to Rs 9.7 billion. Of that amount, Rs 3 billion is the earlier credit from GOI. So that means, rupee borrowings have increased by Rs 6.7 billion in four months. Add to that the Rs 2.3 billion that was left over after clearing the SBI overdraft credit, and we get Rs 9 billion. That figure should equal the rupee deficit during the last four months. And that deficit seems to be growing. So I’m scared.

Our combined imports exceed our exports. That’s why we have a rupee crunch. But the rate at which the deficit seems to be growing is alarming. It was a record Rs 8 billion last year (that’s why the government sold US$ 200 million). And now, within a span of barely four months, the economy has been hit with a deficit of Rs 9 billion.

Our economy is bleeding. But the government does not seem to know it or does not care to admit it. They have not yet identified the problem. Instead, they blame the private sector, and seem to think that the rupee crunch will be solved mainly after GOI extends their credit line from Rs 3 billion to 10 billion.

Loans will not solve our problem. They’re good only for temporary respite. Eventually, loans will make matters worse.

Yes, we must curtail private consumption. But that has been the focus of  RMA’s many measures. And that doesn’t seem to have helped.

What we must do – and what I’ve said over and over again – is curtail government expenditure. The government’s expenditure has grown dramatically since 2008. And unless the government reins in their excesses, the rupee crunch will continue. In fact, it will get worse.

Eventually we must work hard to correct and improve our balance of payments. We must import less. And we must export more. There’s a whole lot we can and must do: agriculture, construction, education, tourism, ICT, hydropower, mining, manufacturing and even lottery, all of them represent big opportunities. But all of them will take time.

For now, we must stop the bleeding. And most of it takes place by way of government consumption. So the government must stop all unnecessary spending, especially excessive recurrent expenditure. The government must go into austerity mode.

Here’s what the government has spent and is spending.