EDITORIAL: The International Monetary Fund (IMF) in its latest report titled ‘Fiscal monitor: a fair shot’ has projected Pakistan’s net debt at 80.7 percent of Gross Domestic Product (GDP) in the current year against 79.6 percent last year with gross debt rising to 87.7 percent of GDP in 2021 against 87.2 percent in the current year. This belies consistent claims by the Prime Minister and his economic team that debt is being incurred to repay past loans and that economies in expenditure, particularly in the outlay for the Presidency, the Prime Minister’s House and secretariat as well as other ministries, have reduced total expenditure. Business Recorder has repeatedly pointed out that as per data sourced to the government, including statements made in parliament: (i) external debt has risen dramatically with 17 billion dollars paid as interest and principal as and when due for loans incurred during previous administrations while 5 billion dollars (in just two years) were acknowledged to have been incurred to fund a rise in expenditure; (ii) true that current expenditure was projected to decline in the current year, however, the decline is sourced to the G-9 debt relief initiative extended to indebted countries as a consequence of the pandemic which is a deferral for a year and not a write-off; (iii) domestic debt has risen by a historic high – from 16.5 trillion rupees inherited by the Khan administration to 23.7 trillion rupees by September 2020 – a rise of 44 percent in just two years. This accounts for the rise in domestic debt servicing attributed to changing debt from short- to long-term that required a rise in interest payable and contributed to a rise in inflationary pressures.
The IMF notes that part of the debt increase was due to support for the larger than historical norm for business cycle fluctuations - which may be defined as easing of the severely contractionary fiscal and monetary policies that were in place as a consequence of the staff-level agreement reached on 12 May 2019 for the 6 billion dollar EFF between the Fund. This, the Fund’s report added, was appropriate due to the pandemic. However, the Fund falls short of accepting its own contribution to the rise in poverty levels that a World Bank report released a day earlier highlights, which almost certainly contributed to a rise in poverty numbers. To rely exclusively on the Ehsaas programme, which suffers from an obvious dearth of funding, to deal with the rise in poverty numbers, is perhaps too simplistic especially on the back of upfront harsh contractionary policies supported by the Fund.
Other four key macroeconomic figures released by the Fund are equally distressing as a percentage of GDP. First, revenue (tax and non-tax) is projected at 15.8 percent for 2021 against 17 percent for 2022 (the projection based no doubt on the staff-level agreement reached with Pakistani authorities on 16 February 2021 with a host of over-optimistic tax and non-tax revenue projections, if agreements reached with the Fund during the ongoing Extended Fund Facility programme are taken as a precedence.
Second, primary balance at negative one percent for 2021 as a percentage of GDP (against the Finance Ministry’s data in the mid-year budget review report of 2020-21 of budgeted estimate of primary balance at negative 0.5 percent while the actual mid-year estimate was plus 0.7 percent) against negative 1.7 percent in 2020.
Third, decline in government expenditure to 22.9 percent of GDP in the current year against 23.1 percent of GDP the year before. This appears to be an over-optimistic assessment given the recent increase in subsidies due to inflationary pressures and shortages of key consumer items in the market that are compelling the government to import commodities.
And finally, the budget deficit is projected at 7.1 percent in the current year while the deficit for the previous year was given at 8 percent though the jury is out on the extent of data juggling that led to the downgrading the deficit from 9.1 percent in the budget documents to a downward revision in data released in August 2021.
The foregoing appears to be a treatise from the Fund justifying its programme design especially given the recent comments by the Prime Minister urging a redesign of the programme as well as by Shaukat Tarin, reportedly Hafeez Sheikh’s successor, who has publicly stated that the country needs to spend more in the aftermath of the third wave of Covid-19 in the country that is worse than the previous two.
The Fund has pointed out in the report that the country’s total financing needs in the current year are a whopping 35.9 percent of GDP (at 45.567 trillion rupees as on 31 December 2020) or 16.2 trillion rupees – an amount which has no doubt risen since. In other words, the country has reached the red zone with respect to reliance on debt to fund its expenditure and the task of the government has become all the more challenging to balance economic considerations with political concerns. There is also a rising fear in the country that the next round of the implementation of the programme would break the public’s back leading to rising spontaneous protests.
Copyright Business Recorder, 2021