By: Murtaza Ali Kazmi and Ahsan Raza
The people of Pakistan are striving to make their Nation economically strong, but there are currently some financial issues prevailing in the Pakistani market that are hindering the country’s growth. One of the biggest challenges that Pakistan currently faces is the Public debt. It is defined as the total amount of debt owed at a specific point in time by a government to lenders. The Public debt can be owed to lenders within the country or to Foreign Organizations like the IMF.
The State Bank of Pakistan released the debt figures as of September 2021. The Pakistani Economy has accumulated a Gross Public Dept of Rs.50.5 Trillion. An addition of Rs.20.7 Trillion was accumulated in just the past 3.5 Years, which is an increase of approximately 73% in total debt of the country. Back in June 2018, a Pakistani owed Rs.145,000, which increased to Rs236,000 by September 2021, which is an additional burden of 63%.
IMF has reported on Pakistani debt on April 2021, that the debt sustainability analysis of IMF on Public debt remains sustainable with strong policies. They also pointed out risk of contingent liabilities. On June, Pakistan gross public debt reached about Rs 40 trillion and it is about one third external and two third is of domestic. The Pakistan Treasury bills, national savings scheme and Pakistani investment bonds is mainly on domestic debts. The greater burden is paid on foreign exchange and the lenders and other powerful entities. On June when dollar climbed from Rs 157 to Rs 170, it caused the external debt to increase relative to GDP.
The high degree of being indebted has put damage to Pakistan and these economic shocks has weakened the country politically and their external lenders reduced the ability to invest in education and healthcare which would benefit economically. The IMF is in no intention to be flexible, as Pakistan is dependent on IMF to sustain their economy. Other than IMF conditions there are other factors that need attention.
Government has to tackle this debt issue rather then rely on IMF. As Pakistan gross public debt cross over RS. 50 trillion on the year 2021 which is one third of external debt, the rupee depreciates and paying up more the foreign lenders in terms of local currency. We have to control our currency depreciation rather then seeking from Foreign loans from the IMF.
In the case of Pakistan, the interest on loans becomes higher than the development expenditure so there is something wrong with the economic policies. Pakistan is now at lower end economically according to the international agencies compared to other developing countries. As Pakistan is unable to pay back debts timely, temporary reliefs aren’t beneficial as they will run out soon.
Our current economic policies have already made it difficult for us to get out of the FATF grey list. In order to get out of these issues, we must improve our sovereign rating to reflect our governance and institutional effectiveness. This cannot be achieved without a better economic structure to improve growth prospects, along with the external finances with fiscal and monetary flexibility.
The increasing public debt is proving to be detrimental to the people of Pakistan as it has increased poverty and suffering of the citizens of Pakistan. Jubilee Debt Campaign, has identified Pakistan as one of the 52 countries facing a debt crisis. Every new borrowing creates need for more borrowing, with an external account crisis just around the corner. A huge amount of government debt results in a negative impact on economic growth potential, so it is imperative that the government focuses on reducing the debt.
The main problems are inflation and employment due to the overbearing debt. The inability to invest in our people and currency depreciation has caused, debt fuel inflation. The cost of debt repayment is largely spread over the majority that has little ability to pay. The debt obtained by Pakistan over the years, would have been beneficial if it were invested to build the productive capacity of the economy, eventually generating returns greater than the interest rate and earning forex through growing exports
The purpose of the “Fiscal Responsibility and Debt Limitation Act, 2005” was to reduce the federal fiscal deficit and ratio of public debt to gross domestic product to a sensible level. This would be done by effective public debt management and it covers both fiscal responsibility and debt limitation. The Act required that the Debt-to-GDP ratio should be reduced to 60% by the end of 2017-18 and then gradually down to 50% by 2032-33.
However, this law was not practiced by the governments in power since 2005. Although there are many problems being faced by the Pakistani markets like Public Debt, the people of Pakistan can find solace in the fact that public debt relative to the size of our economy can be and has been reduced.
It is suggested to broaden tax base for direct taxes, cutting unnecessary expenses, investing in exports for economic growth. All the while increasing remittances and shift to more efficient ways of raising longer-term debt. Tax authorities need to use the necessary tools to acquire data and take action against all Tax invaders.
All in all, when it comes to the financial issues prevailing in the Pakistani market, it is not the risk of any type of war that would destroy Pakistan but actually it is the Public Debt that is gradually draining Pakistan to the point of no return. The leaders and politicians need to stop with their point scoring and work towards a constructive solution for the betterment of the Pakistani economy.
