PhD defended at:
Budget deficit (BD) and current account deficit (CAD) are subjects of great interest and debate among macroeconomists for many years. Persistently large CAD is troublesome due to the associated transfer of wealth to foreigners and the burden that it imposes on the future generations (Anuruo and Ramchander, 1998).Though running BDs cannot be faulted as profligacy under all circumstances, a series of large deficits is inimical to macroeconomic performance. Persisting deficits increase public debt, contribute to the inflationary pressures and crowd out private investment.
Given their detrimental impacts, when countries run large budget and current account deficits, concerns often arise about the sustainability of these deficits. The natural question that comes to mind is whether the country in question is solvent or, in other words, does it have the ability to generate sufficient budget surpluses (trade surpluses in case of current account) in the future to repay the existing debt? Solvency is defined theoretically in relation to economy’s present value budget constraint. By this definition, economy is solvent if the present discounted values of the future trade surpluses are equal to current external indebtness. In the case of public finances, solvency requires that the present discounted values of the future budget surplus are equal to the current public debt (Millesi-Ferretti and Raisin, 1996). The practical applicability of this definition is inhibited by the fact that it relies on future events and policies without imposing any ‘structure’ on them. Researchers have therefore attempted to define a baseline for future policy actions. In the case of public sector solvency, this determination is made by postulating a continuation of the current policy stance into indefinite future. This gives rise to the notion of sustainability-the current policy stance is sustainable if its continuation into the indefinite future does not violate the solvency constraint.
If the sustainability hypothesis holds, then the ongoing fiscal policy and current account stance can, at least in principle, be maintained indefinitely, whereas if it fails, then there is a need for discretionary policy actions. In particular, a failure implies that the government will inevitably run into problems in managing its debt, thus requiring compensation in terms of higher interest rates leading to a slowdown in economic growth.
From a policy point of view, the issue of whether the sustainability hypothesis for CADs holds or not is extremely important. The argument may be substantiated by the fact that a number of currency crises in the past have been associated with large, growing and eventually unsustainable current accounts (Baharumshah et al., 2002)
The sustainability of BDs is a major concern at least since the outbreak of global financial crisis (GFC) and the sovereign debt crisis in Europe. The growing concern regarding the BD and debt situation in many OECD countries has provided an impetus for reassessment of fiscal sustainability. Though, the emerging economies experienced less deterioration of BDs in wake of the GFC than the developed economies, their fiscal sustainability remains exposed to the vulnerabilities facing the global economy, including the downward risks to economic performance from a Europe-led debt crisis and recession. Thus, particularly in the current global situation, proper management of public debt and deficits remains crucial for its own sake and for financial stability (Das et al., 2011).
Along with the sustainability of the BDs and CADs, another cause of concern pertaining to the macro-management of a country is the tendency of the two deficits to grow together. In the present context, a number of economies are facing the challenge of controlling BDs and CADs in the aftermath of the GFC. A natural question, therefore, is whether making progress along reducing BDs is likely to facilitate progress along reducing the external imbalances. This has led to the resurgence of interest in the ‘twin deficits hypothesis’(TDH) which postulates that a deterioration in the budget balance results in a corresponding deterioration in the current account balance.
Therefore, the sustainability of current account and budget balances as well as the linkages between the two balances is presently a key issue for both developed and developing countries. Focusing on developing countries, the case of South Asia deserves particular attention. Led by a robust growth in India, South Asia emerged as the fastest-growing region in the world (World Bank, 2016). Notwithstanding a high rate of growth in the recent past, the fiscal situation in the region exhibits signs of distress. Consequent upon the reforms, South Asia’s BDs are decreasing gradually but its deficits and debt ratios remain consistently high relative to other developing regions (World Bank, 2016). Compared to the fiscal situation, the region is more comfortably placed in terms of its current account position. However, in a comparative perspective, the current account situation of the region does not seem distinctly superior to its peer regional groups. India’s experience with its highest ever CAD in 2012-13 accompanied by sharp depreciation of Indian rupee and high inflation and more recently, Sri Lanka’s troubles in terms of inadequacy of foreign currency earnings and reserves to meet its external financing requirements bear testimony to this fact.
In view of the above discussion, the objectives of the study are as follows:
1. To investigate the sustainability of budget deficits for the major South Asian economies, namely India, Pakistan, Bangladesh, Sri Lanka and Nepal.
2. To assess the sustainability of current accounts for the above economies.
3. To examine the Twin Deficit Hypothesis in context of the above economies.
3.Time Period and Data
The study utilizes annual data on the relevant fiscal and external variables for period 1985-2016. The selection of the five countries, out of the eight in the region, and the choice of the time period are dictated by availability of consistent and comparable data. The data span under consideration is of interest as this period represents the post reform period for the countries. The data are assembled from Key Indicators for Asia and the Pacific, World Economic Outlook Database and various International Monetary Fund country publications and reports.
4. Theoretical Framework, Methodology and Empirical Results
4.1 Budget Deficit Sustainability for Major South Asian Economies
The concept of fiscal sustainability implies the fulfillment of the so-called inter-temporal budget constraint (IBC), which states that the current level of debt in an economy should equal the present value of future fiscal surpluses.
The empirical studies assessing the compliance to IBC can broadly be classified into two strands. The earlier studies following a univariate approach analyse the mean-reverting behavior of deficit and debt-GDP ratio series (e.g., Hamilton and Flavin, 1986; Wilcox, 1989). Second, the multivariate approach involves examining the long-run relationship between the flows of revenues and expenditures (e.g., Hakkio and Rush, 1991; Quintos, 1995; Hatemi-J,2002; Afonso and Jalles,2012).
Bohn (1998, 2007) in his seminal work, however, challenges the above literature suggesting that the time series tests of sustainability do not explicitly identify the fiscal policy reactions underlying the data. Bohn (1998, 2007), therefore, suggested an alternative model-based approach to fiscal sustainability. In case fiscal authorities take corrective measures in response to deterioration in debt position, rising debt ratios lead to higher primary surpluses relative to GDP indicating a tendency towards mean reversion. Accordingly, a positive feedback from debt stock to primary surplus is a sufficient condition for fiscal sustainability.
The empirical strategy of the present study relies on two alternative approaches proposed by Hakkio and Rush (1991) and Bohn (1998) discussed above. The theoretical framework underlying the first approach relies on the government’s dynamic budget constraint and on the assumption that the interest rate follows a stationary stochastic process. Fiscal sustainability can then be tested through the following cointegrating regression:
Where Rt and Gt are government revenue and expenditures inclusive of interest payments on debt; ut is a stationary random variable and a and b are cointegrating parameters. Following Quintos (1995), the fiscal sustainability exists in “strong” form if Rt and Gt are cointegrated and b = 1. The fiscal stance is instead only “weakly” sustainable if 0 <b <1. Under this milder sustainability condition, government expenditures grow, on average, at a rate higher than receipts. The alternative strategy proposed by Bohn (1998) involves estimation of the following model:
Where PSt is the primary balance, Bt is the level of debt in the economy at the beginning of period t (which can be approximated by the level of debt in the period t−1) and Zt is a vector of explanatory variables capturing economic cycles. The sufficient condition for sustainability requires ρ>0 so that the government would be taking corrective actions – reducing the level of expenditure and/or increasing tax revenues to offset the changes in level of debt.
The study contributes to existing literature by combining individual country analysis by means of time-series techniques with panel data approaches for completeness and robustness purposes. A further contribution is an evaluation of the degree of fiscal sustainability. This issue is usually disregarded in the existing literature pertaining to the selected countries, either because the analysis of sustainability is based on the assessment of interest–growth differentials (e.g., Ejaz and Javid, 2011; Mahmood, et al., 2014) or stochastic properties of debt (e.g., Buiter and Patel, 2006; Deyshappriya, 2012) or because the estimates of the cointegrating vector between expenditure and revenue are not discussed (e.g., Jha, 2001; Kaur and Mukherjee, 2012; Munawar Shah et al., 2014). Besides drawing inferences regarding sustainability of public finances, the direction of causality between government expenditures and revenues is also examined that provides insights into the identification of the source of fiscal imbalances.
Prior to the econometric investigation of the sustainability conditions, the study provides an overview of the fiscal profiles of the countries and discusses the related implications for sustainability. The analysis reveals that though the trends in the revenue, expenditure and BD (as percent of GDP) differ for the countries, the debt/GDP ratio exhibits a declining trend after 2000 for all the countries pointing toward long-term sustainability of debt. Moreover, a decline in the share of external debt in the countries during the post reform period represents reduced exposure to exchange related risks. The recent efforts of the countries to improve the debt risk profile by shifting towards the longer end of yield curve also provide improved outlook for sustainability. However, the interest burden of debt-an important indicator of sustainability- seems to pose challenges for both Pakistan and Sri Lanka.
In case of the individual country analysis, the Autoregressive Distributed Lag(ARDL) bounds testing approach indicates long-run relationship between government revenue and expenditure only in case of Bangladesh. However, the results of Gregory-Hansen (1996) and Carrion-i-Silvestre and Sanso (2006) tests, which take care of an endogenous structural break in the long-run relationship, confirm the presence of long- run relationship between government revenue and expenditure for all the countries.
The identified break dates in case of India and Sri Lanka correspond to the implementation of Fiscal Responsibility and Budgetary Management Act and Fiscal Management Responsibility Management Act respectively. Though the effectiveness of the Acts in bringing about the desired fiscal outcomes are questioned but the period after 2003 witnessed a decline in debt/ GDP ratio of both the countries. In case of Nepal, the post break period witnessed an improved revenue performance while in Pakistan, the post break period observed a more stable revenue performance after a decline for almost a decade. Hence, the post break periods reflect closer correspondence between revenues and expenditures.
Regarding the degree of sustainability, Dynamic Ordinary Least Squares(DOLS) estimation reveals that coefficient of slope parameter is significantly less than one except for Bangladesh. This indicates coherence with ‘strong’ sustainability in case of Bangladesh while sustainability holds only in weak form for the other economies.
To provide insight into the dynamics of fiscal adjustments process, causality analysis has been conducted which lends support to ‘spend-tax hypothesis’ for India, Bangladesh, Pakistan and Sri Lanka and ‘tax- spend hypothesis’ for Nepal in the long-run.
Following Bohn (1998, 2007), an alternative test for sustainability has been conducted by examining the reaction of primary balance to the increase in debt ratios. The ARDL estimates of fiscal reaction function(FRF) indicate a positive long-run response of primary balance to rising public debt ratio in India, Pakistan, Sri Lanka and Bangladesh thus confirming sustainability. The results of bounds test are inconclusive for Nepal hence the estimation of FRF could not be proceeded with.
For robustness of the results, the sustainability conditions are also examined in a panel framework. In view of the high cross sectional dependence in the data both first and second generation panel unit root tests and panel cointegration tests are used. The first generation panel cointegration test by Pedroni (1999) and the second generation cointegration by Westerlund (2007) confirm the long-run relationship between revenue and spending for the panel. However, the estimates of slope coefficient based on Group Mean-Fully Modified Ordinary Least Squares(GM-FMOLS), Group Mean-Dynamic Ordinary Least Squares(GM-DOLS) and Common Correlated Effects Mean Group(CCEMG) estimators are not consistent with the strong form of sustainability. The panel ARDL estimates of FRF are in conformity with time series results indicating that in response to rising debt ratios the countries react by improving their primary balances. The results from the panel analysis thus corroborate the findings of time series analysis.
To sum up, the empirical results demonstrate coherence with IBC for the countries. However, except for Bangladesh, sustainability exists only in weak form which indicates that the governments of the other four countries might face difficulties in marketing their debts.
4.2 Current Account Deficit Sustainability for Major South Asian Economies
The nature of the sustainability of a current account problem is the same as the sustainability of BDs. Due to the similar theoretical nature of the problems, development of the literature on sustainability of current account and fiscal policy have experienced a parallel development. The usual way to analyze sustainability of current accounts involves use of the intertemporal approach to the current account. Developments in time series techniques, notably tests for stationarity, allowed for econometric testing of the above condition in terms of stationarity of current account. Alternatively, a number of studies (for example, Hakkio and Rush, 1991; Husted, 1992; Wu,Stilianos& Show-lin, 1996) sought to prove the mean reversion in current account by examining the cointegration properties between exports and imports.
The empirical studies assessing the sustainability of South Asian current accounts yield mixed results. The results are sensitive to the time period and the econometric methodology applied. Possible reasons attributed to the failure of some of these studies to identify the sustainability may be the exclusion of other components of current account such as remittance, grant and foreign capital investment, some of which, are assuming increasing importance in the current account development of the region (see for example, Perera and Verma 2008; Verma and Perera, 2008; Jalil, 2008). Moreover, the weak empirical support for sustainability hypothesis may also be due to the poor precision of commonly applied time series tests.
The present study examines the sustainability of current accounts using the intertemporal solvency model of Hakkio and Rush (1991) and Husted (1992). The sustainability of current account under the approach can be tested through the following cointegrating regression:
Where Xtand Mt are exports and imports (inclusive of net interest payments and net transfer payments) respectively; ut is a stationary random variable and a and b are cointegrating parameters.
In case of the individual country analysis, the ARDL bounds testing approach fails to obtain a long-run relationship between outflows and inflows on current account for the countries. However, the results of Gregory and Hansen (1996) cointegration test and Carrion -i -Silvestre and Sanso(2006) test by allowing for unknown structural break provide support for existence of long-run relationship between the current account outflows and inflows for all the countries. The identified break dates in case of India and Nepal mark the effect of GFC. In case of India, 2008 marks the commencement of a sharp worsening of the balance on the goods accounts while for Pakistan, Bangladesh and Sri Lanka, the identified break dates may be associated with the strong upward movement in the balance on secondary income account.
The estimates of coefficient on exports based on DOLS are not statistically different from one in case of India, Bangladesh and Nepal which indicates coherence with strong form of sustainability whereas the current accounts are sustainable only in weak form for Sri Lanka and Pakistan. The panel cointegration tests by Pedroni (1999) and Westerlund (2007) also confirm the long-run relationship between exports and imports. The estimates of the slope coefficient based on GM-FMOLS, GM-DOLS and CCEMG indicate a positive and significant slope coefficient. The estimates indicate that the exports for the panel increase between 0.77-0.88 percentage point in response to one percentage point increase in the imports. However, the restriction on the coefficients consistent with ‘strong’ sustainability (b=1) is rejected for all three estimates indicating that the sustainability exists only in ‘weak’ form.
Despite the absence of strong sustainability in case of Pakistan and Sri Lanka and also for the panel as a whole, the results of the study point to improvement in the external outlook of South Asia compared to some of the previous empirical studies (e.g., Verma and Perera 2008; Perera and Verma 2008; Sahoo et al., 2016). The improvement in the results hinges on the usage of an extended definition of inflows and outflows that include the other components of the current account namely, unilateral transfers and interest payments which have been playing an important role in the current account developments of the region for quite some time. The usage of an extended time period and improved econometric procedure also explain the improvement.
In view of the criticism that the IBC imposes only a mild restriction on the evolution of a country’s current account, the study further sheds light on some practical aspect of sustainability such as the composition of current account, size of external debt etc to have a more accurate picture of the sustainability prospects.
The analysis suggests that the countries under consideration witnessed either a declining or a non increasing long term trend in the CADs of the countries during the review period which augurs well for the sustainability. Moreover, the non consumption dominated import structures, increasing export diversification in most of the cases and broadly declining external debt stocks(except for Sri Lanka in the recent years) across the countries may also be considered welcome signs from the sustainability perspective.
However, one problem consistent across the countries is the high and widening trade deficits that points to structural weaknesses of the economies. Although the steady flow of remittances have been acting as a cushion to current account against these trade deficits, with the tightening of immigration laws in Europe and US along with the slowdown in construction activities in the Middle East the flow of remittances may entail an element of fragility.
Finally, in a comparative perspective, the study finds that current accounts in India, Nepal and Bangladesh conform more to a sustainable behavior in terms of the size of deficits, compliance to the IBC, size of external debt and foreign reserves. However, the narrow base of exports in Bangladesh and the recent decline in exports as proportion of GDP in Nepal attract concern.
4.3 Empirical Investigation of Twin Deficit Hypothesis for Major South Asian Economies
The twin deficit hypothesis (TDH) postulates that BD and CAD are intertwined and a deterioration in the budget balance results in a corresponding deterioration in the current account balance of an economy. Regarding the transmission mechanism through which BD affects CAD, the Keynesian income-expenditure approach, an increase in BD increases domestic absorption that induces imports and worsens CAD. In the Mundell–Fleming framework under flexible exchange rates, an increase in BD induces an upward pressure on interest rates causing capital inflows and thereby causing an appreciation in real exchange rate. The stronger currency in turn reduces net exports and worsens CAD.
In case of South Asia, the body of evidence does not yield a consensus on the validity of TDH. The results are found to be sensitive to the sampling period and methodology of investigation. Moreover, the existing empirical literature on South Asia does not shed much light on the transmission mechanism connecting the BD and CAD. A good number of studies including Acharya (2009),Mukhtar et.al(2007), Sahoo (2012),Asrafuzzaman et. al (2013),Ravinthirakumaran et.al.(2016) are based on a bivariate framework ignoring role of mediating variables such as interest rate, income etc. in the causal linkage between CAD and BD. Further, despite the growing usage of the panel econometric techniques in the investigation of the TDH, no study has so far been conducted for South Asian region in panel framework.
Towards the examination of the TDH, the present study employs a multivariate framework including real interest rate, real exchange rate, real GDP to avoid the possibility of incorrect inferences due to omission of relevant mediating variables. The choice of the mediating variables correspond to the transmission mechanism provided by Mundell-Fleming and the theoretical framework of Tang (2015) derived from a general equilibrium perspective involving behavioral determinants of private saving and investment.
The study first examines the long-run relationship between budget balance and current account balance using the time series data for each individual country. The ARDL bounds test confirms the long-run relationship among the two balances, real interest rate, real exchange rate and real GDP for all the countries. The ARDL estimates of long-run coefficients indicate a positive impact of budget balance on current account balance for all countries except Nepal.
The positive sign of the coefficients suggest that an improvement (or deterioration) in budget balance leads to improvement (or deterioration) in the current account balance. In case of Pakistan and Sri Lanka, the coefficients are relatively larger in size indicating a stronger impact of budget balance on current account.
The positive impact of budget balance on current account is reaffirmed by panel estimates of the model.To confirm the presence of TDH, causal relationship between the two balances has been assessed. The results of Toda Yamamoto causality test reveal bi-directional causation between the two balances in case of India and Bangladesh; TDH in case of Pakistan and Sri Lanka and reverse causation from current account to budget balance in case of Nepal. Regarding the transmission mechanism, the causality analysis indicates an absence of the causal chain postulated by Mundell Fleming which predicts that BDs cause CAD via interest rate and exchange rate. These results indicate that the budget balance in the countries affects CAD possibly by a direct impact through demand. A CCEMG estimate of the import demand function for the countries reveals a positive government spending elasticity of imports which substantiates this argument. Besides, the causation from budget balance to current account balance may also be attributed to the external financing of BDs in the countries.
5.Conclusion and Policy Implications
The empirical results of the study have important policy implications for the macro management of South Asian economies. Firstly, the results of BD sustainability analysis reveal that although the countries under consideration comply to IBC, strong sustainability of deficits exist in case of Bangladesh only. The rest of the countries, namely India, Pakistan, Sri Lanka and Nepal exhibit weak sustainability. The strong sustainability implies that the government is able to raise revenue at the same rate as the increase in spending so that revenue and expenditure share a one to one relationship in the long-run. This implies that no problem according to the ongoing fiscal policy are likely to arise in the future and the government need not worry about the future debt situation. The weak sustainability of the deficits, on the other hand implies compliance to IBC and no ponzi game conditions but inconsistency with the government’s ability to market its debt in long-run (Quintos, 1995).
This implies that whereas Bangladesh may continue with the ongoing fiscal policy, the other four countries need to reinforce their commitments to long-term fiscal discipline. Pakistan, Sri Lanka and Nepal need greater effort in narrowing the gap between spending and revenue as they exhibit relatively lower cointegrating coefficient between revenue and expenditure compared to India where the size of the cointegarting coefficient as well as the response coefficient of primary surplus to debt both are higher. With its poorly structured debt composition, Pakistan needs special efforts towards improving its debt management.
To the extent that required fiscal adjustments are feasible there is no unanimity on how effective the different fiscal strategies would be. Specifically, should the government adjust both revenue and expenditure to correct BD or should it let the burden on one or the other fiscal instrument. In the backdrop of the above, the question of how the budgets must be balanced is closely related to the causal relationship between revenue and expenditure.
The causality analysis between revenue and expenditure lends support to ‘spend-tax- hypothesis’ for India, Bangladesh, Pakistan and Sri Lanka and ‘tax- spend hypothesis’ in case of Nepal. This implies that in case of India, Bangladesh, Sri Lanka and Pakistan the governments set their spending objectives first and subsequently raise revenues to finance committed expenditures.
In view of the above causal relationships, it may be recommended that in case of Pakistan, Sri Lanka and India where the spending Granger causes revenue, revenue would be a more effective instrument for correcting the deficits as the revenue raising will not necessarily lead to increase in spending. In light of this recommendation, it is to be noted that South Asian countries have undertaken considerable tax reforms in the last decade. Consequent upon the reforms, their tax structures have converged with the rest of the world (Gupta,2015) but still the countries underperformed in tax revenue generation, not because of the paucity of reforms, but due to their limited success in widening the tax bases. The difficulties in augmenting the tax base may be attributed to structural factors such as large share of agriculture and informal sectors, low literacy and large scale evasion. Therefore, if revenue is to be utilized as an instrument for fiscal consolidation, effort should be situated within a wider reform program that aims to strengthen governance, improve business environment and help formalization of economies.
It should be noted that institutional mechanism of financing deficits might be a driver of direction of causation between revenue and spending. The causation from revenue to expenditure in case of Nepal may be explained by the fact that Nepal receive a large amount of grant thus leading to a phenomenon where revenue availability constraints spending. Therefore, for Nepal, it may be recommended that, fiscal consolidation programme should focus more on control of spending as the increase in revenues would translate into increased spending.
Regarding the issue of sustainability of current accounts, the study supports strong sustainability hypothesis for India, Bangladesh and Nepal while weak sustainability holds for Pakistan and Sri Lanka. The weak sustainability of deficits is a pointer to future problems as it reflects a faster rise in outflows relative to inflows on the current account and are interpreted as warning signals to the creditors due to the country’s continuation of bubble financing of the debt (Destaings, et al.,2013).
The study recommends that policy interventions in Pakistan and Sri Lanka must be undertaken to bring about a closer correspondence between current account inflows and outflows. The interventions become particularly important in view of the two country’s relatively higher deficit and external debt ratio and a less comfortable reserve position compared to peers. Since the problem of trade deficit lies at the heart of CADs in these countries, the policies must aim at controlling trade deficits. Though, required more urgently in case of Sri Lanka and Pakistan, the control of trade deficit is crucial for the other three economies as well in wake of the fragility involved in the future inflows of remittances from EU,US and Middle East countries.
A reduction in imports, increase in exports, or a combination of both measures can achieve the reduction in trade deficits. Which alternative is the appropriate one can only be answered by explicitly finding out the direction of causality between imports and the exports and assessing the macro implications of each of the strategies. For instance, given that the import structure of the South Asian countries is dominated by intermediate commodities, the implications of import curbs must be assessed in terms of their impact on overall growth.
Moreover, though Bangladesh and Nepal exhibit strong form of sustainability, the study points to certain country specific risks. Firstly, despite the fact that Bangladesh could manage to have one to one correspondence between current account inflows and outflows during the review period, export structure of Bangladesh remains highly concentrated. In order to preserve the strong sustainability of current accounts, policy makers must focus on diversification of the export structure of the country. Second, in view of the eroding export/GDP ratio for the last fifteen years and increased diversification in favor of primary products, the policymakers in Nepal need to address the competitiveness issue in manufacturing exports.
In context of the relationship between the BD and CAD, the study finds robust evidence of a positive impact of fiscal balance on current account balance. However, whether fiscal balance can be used as a tool to influence current account balance depend on the causal relationship between them. Since the TDH holds in case of Pakistan and Sri Lanka and there is no reverse causation from current account to the fiscal balance it may be recommended that Pakistan and Sri Lanka should control their BDs in order to control CADs. Since the relationship between the two deficits is mutual in Bangladesh and India, an improvement in current account balance requires fiscal austerity but fiscal policy by itself cannot rectify the CAD as BDs are not fully exogenous. Fiscal adjustment itself requires adjustment in CADs. In order to break the vicious cycle of the two deficits, fiscal prudence must be accompanied by complimentary actions to curb CADs.
Further, the study finds some evidence that the impact of budget balance on current account transmits via direct impact through demand. In view of the high government spending elasticity of imports, it may be recommended that the government spending must be rationalized in terms of its import content.Finally, in case of Nepal, where the reverse causation holds from current account to fiscal balance, current account balance may be used as a tool to influence budget balance.