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EDITORIAL: The total government debt has surged by 11 percent to 36.53 trillion rupees by end January 2021 in comparison to the year before. Domestic debt rose from 21.79 trillion rupees July-January 2019-20 to 24.5 trillion rupees in the comparable period of 2020-21 with the largest rise attributed to long-term debt – the outcome of deliberate government policy agreed with the International Monetary Fund to extend the debt tenor leading to a rise from 16.74 trillion rupees by end January 2020 to 19.37 trillion rupees end January 2021 but with a commensurate rise in interest payments and a decline in the repayment for loans reaching maturity. The Pakistan Tehrik-i-Insaaf (PTI) government inherited total domestic debt of 16.5 trillion rupees and with the debt now at 24.5 trillion rupees the rise in domestic debt in two and half years is 48.4 percent – a historic high with implications on inflation though neither the ministry of finance nor the central bank has acknowledged the contribution of rising domestic debt on prices and to the utter dismay of independent economists, the Prime Minister’s attention remains exclusively focused on the mafias operating in our market as well as on the depreciation of the rupee considered necessary after PML-N’s Ishaq Dar’s disastrous policy to keep it grossly overvalued. This focus can be sourced to the IMF 20 June 2019 report titled ‘Request for an extended arrangement under the Extended Fund Facility’ which states, among other things, that “following an increase in inflation driven by currency depreciation, appropriately tight monetary policy - aimed at keeping a positive policy rate - is projected to bring inflation down to around 5-6 percent in the medium term.” The element of higher debt, not envisaged in the programme which projected a decline in the fiscal deficit, was not taken into account by either the economic managers or the IMF.

Disturbingly, the IMF press release dated 16 February 2021 hints but does not reveal the exact time-bound conditions agreed by Pakistan’s economic team on implementing “the power sector’s strategy (which) aims at financial viability, through management improvements, cost reductions, and adjustments in tariffs and subsidies calibrated to attenuate social and sectoral impacts,” and therefore the impact on a household’s pocket book of the precise measures will be known only after the prior conditions are met and the Board date, a prerequisite to the release of a tranche, is set and subsequent to approval will be uploaded on the Fund website.

Foreign debt inherited by the PTI government was 95.3 billion dollars and today the debt is 118 billion dollars, according to data released by the Economic Affairs Division. According to data released by the government to a relevant Senate standing committee, 17 billion dollars was borrowed to repay past loans (defined as those incurred during the previous administrations) which leaves around 5.7 billion dollars that was used for budget support which, in turn, was critical to meeting the primary surplus target agreed with the IMF. In other words, the government has raised debt to a historical high which prompted the Fund to note in April 2020 in the document titled ‘Request for purchase under the rapid financing instrument’ that “debt is projected to increase to around 90 percent of GDP in 2020 against 85 percent prior to the shock, both due to the sharp decline in growth and the increase in the budget deficit… Debt sustainability is supported by agreed rollover of maturing obligations by key bilateral creditors (China, Saudi Arabia and the UAE)...these are also critical to reduce gross financing needs to 19.5 percent of GDP by 2025 supported also by the authorities’ efforts to improve the maturity structure of debt.” Interestingly, the IMF acknowledges that “portfolio outflows (read hot money outflows supported by 13.25 percent discount rate) have put some pressure on the foreign exchange market.”

There is a heavier than ever before reliance on debt - both domestic and foreign - with the IMF for the first time insisting that Pakistan incur a debt of 38.6 billion dollars in 39 months (inclusive of roll over by bilaterals) as a precondition for the programme continuation while the Pakistani public continues to grapple with an unprecedented rise in food inflation, that impacts more on the income of the poor than the rich, deepening fears that the rather precariously constructed applecart may topple over.

Copyright Business Recorder, 2021

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