Debt burden of Pakistan, internal and external, during the last 10 years has been increasing at an alarming rate — courtesy fiscal mismanagement, incompetence and sheer callousness of the rulers. According to latest data released by the State Bank of Pakistan (SBP), total debts/liabilities as on June 30, 2016 reached Rs22.459 trillion as against Rs19.846 trillion on June 30, 2015, showing a monstrous increase of Rs2.61 trillion pushing debt-to-GDP ratio to 75.9 per cent. It confirms beyond any doubt that the country is gradually being pushed in a deeper and deeper debt trap.
Within one year (June 30, 2015 to June 30, 2016), there was an increase of 13.2 per cent in debts/liabilities. According to a Press report, “The external debt grew to Rs7.27 trillion at a faster pace than the domestic debt, although both components registered double-digit growth. This was an addition of Rs1.1 trillion in a single year on the back of 16.3 per cent growth”. The report (Pakistan’s debt pile soars to Rs22.5tr) adds: “The government claims its external debt is Rs5.4 trillion, although it raises serious questions about the government’s definition of debt calculation.” It is revealed that “in terms of the US dollar, the total external debt and liabilities have increased to $73 billion — a net addition of $7.83 billion in a single year”.
Bifurcation of all debts and liabilities as on June 30, 2016 shows that total public debt alone was Rs20 trillion and private debt, only Rs630.5 billion. Excluding liabilities, the total debt went up to Rs21.5 trillion by June 30, 2016. The report says that “the increase in external debt is more than the International Monetary Fund (IMF) estimates that had put the figure at $71.87 billion in its last report. The IMF had also estimated that the public debt would rise to 64.3 per cent of GDP by the end of the 2015-2016 fiscal. The government’s domestic debt also swelled to Rs13.62 trillion — higher by Rs1.43 trillion or 11.7 per cent over the previous year’s level. The debt of public-sector enterprises grew at an alarming pace of 24 per cent and was registered at Rs568 billion”.
The present government, like its predecessors, has been recklessly borrowing to meet its burgeoning budgetary deficit that exceeded Rs2.5 trillion in 2015-16. According to a report the federal government intends to borrow Rs1.4 trillion from domestic banking sector during September-November 2016 alone. Today’s Pakistan represents a state where the ruling trio — military-civil complex, crooked politicians and profit-hungry businessmen — is very affluent, but the country is on the brink of bankruptcy. This state of affairs is the direct outcome of policies of successive governments — military and civil alike — allowing a free hand to forces of loot and corruption.
It is worthwhile to mention that in June 2008, the total debt was just Rs6.1 trillion. It increased to Rs12.37 trillion as on August 31, 2012 — this was exclusive of $7.4 billion payable to IMF that SBP undertook to repay out of its foreign currency reserves. The previous government, during its 5-year tenure, added around Rs6.7 trillion to debt burden — 103 per cent increase. This monstrous increase was further accentuated by the present government — the total figure as on June 30, 2016 soared to Rs22.5 trillion!
The present government, like its predecessors, has been recklessly borrowing to meet its burgeoning budgetary deficit that exceeded Rs2.5 trillion in 2015-16.
How rulers make mockery of the laws made by the Parliament is best exemplified in Debt Policy Coordination Office, established under the Fiscal Responsibility and Debt Limitation Act of 2005. Under the Fiscal Responsibility and Debt Limitation Act of 2005, it was the duty of the Debt Policy Office to ensure effective management of debt control by formulating a strategy for reducing it. On the contrary, this office silently witnessed as public debt grew from Rs6.1 trillion in June 2008 to Rs22.5 trillion in June 2016 — an increase of 250 per cent!
According to the finance minister when they took over the government in June 2013, public debt was Rs14318.4 billion, external public debt $48.13 billion and domestic public debt was Rs9521.9 billion. During July 2013 to December 2015, the total public debt increased to Rs18467.3 billion out of which external public debt was $53.36 billion and domestic public debt was Rs12878.1 billion — showing an increase of Rs4148.9 billion, inclusive of $5.23 billion of external debt.
It is an incontrovertible fact that external debt servicing is the main concern in the wake of unprecedented rise in the volume of foreign loans since 2008 — the major chunk comes from IMF. The real challenge on debt front will come in the year of maturity of 10-year Eurobonds issued in FY 2006 ($500 million) and FY 2007 ($750 million) which is due in FY 2016 and FY 2017 respectively.
Repayment of rescheduled Paris Club debt under Official Development Assistance will also start from FY 2017, while servicing the Extended Fund Facility programme with the IMF will begin in FY 2018 — the five-year Eurobond issued in April 2014 of $1 billion would mature in FY 2019. It is thus obvious that debt obligations starting from current fiscal year would create extraordinary pressure on the country’s foreign exchange reserves.
Whatever our worthy Finance Minister Ishaq Dar may claim the fact remains that Pakistan is caught in a deadly debt trap. What a tragedy that the government borrows funds from banks to pay off liabilities of corruption-ridden inefficient public sector enterprises (PSEs)! Ishaq Dar, in his utterances, completely ignores or hides the fact that debt obligations in the coming years would create extraordinary pressure on the country’s foreign exchange reserves.
Managing high fiscal deficit (root-cause of many economic ills) coupled with massive debt burden is the toughest challenge faced by our economic managers. The obvious and undisputed solution is substantial increase in resources and drastic reduction in spending, but it is easier said than done.
Pakistan’s fiscal policy remained under immense pressure owing to perpetual failure of Federal Board of Revenue (FBR) to collect the taxes according to the real potential. Failure to harness the real potential is playing havoc with socio-economic fabric of society. Behind the present chaotic situation in Pakistan, among other factors, is an oppressive tax system that is hammering growth and encouraging underground economy. It is shocking that with every passing day more and more people are being pushed below the poverty line whereas the ruling elites — militro-judicial-civil complex — unashamedly waste billions of rupees on their personal comfort and in the name of security.
The government’s unabated borrowing to meet burgeoning budgetary deficit is one of the major weaknesses of economic governance coupled with unchecked wasteful spending on monstrous government machinery and inefficient PSEs. There is no scarcity of resources — as propagated by the rulers to shift blame on others — but issues are related to lack of management on the part of political leadership and bureaucracy. Failure to harness the real potential of Rs10 trillion is the main issue — see detail in paper Towards Flat, Low-rate, Broad & Predictable Taxes’, published by Prime Institute, a public policy think tank.
Our foreign debt is going to swell to US$80 billion in the next five years and that of domestic debt to Rs30 trillion if curative measures and tough decisions are not taken. The policy of wastage and non-utilisation of resources, appeasement of tax evaders, money launderers and plunderers of national wealth, if not discontinued, will push the country to further debt incarceration. The brazen indulgence of rulers and bureaucrats in wasteful expenditure — when half of the population of the country is facing malnutrition — is simply criminal. There is complete indifference to tackle burgeoning public debt — its rapid accumulation cannot be stalled unless fundamental reforms are undertaken as suggested in Towards Flat, Low-rate, and Broad & Predictable Taxes.