EDITORIAL: Our external debt and liabilities have increased to 122 billion dollars July-June 2020-21 as per recent data released by the State Bank of Pakistan (SBP). In December 2018, a little under three and half months after the PTI administration assumed the reins of government, external debt was 99.1 billion dollars or there has been a rise of 23 percent in two and a half years. The government’s claim that this debt was incurred to pay off past loans, particularly those procured by the Ishaq Dar-led finance ministry which in defiance of basic economic rationale opted to borrow at a lower rate of interest from external sources (as well as giving more than triple the then prevailing global market rate on sukuk/Eurobonds).
The data reveals four extremely concerning trends: (i) the present government in a parliamentary finance standing committee meeting acknowledged that at least 5 billion dollars was used to meet the budget deficit which, notwithstanding this expensive injection, remained at an unsustainable level of 7.1 percent last year, albeit a tad lower than the deficit of 8.2 percent in 2019-20 and 9.1 percent in 2018-19; (ii) debt servicing and principal on external debt, budgeted in rupees, rose from 9.6 billion dollars in 2019 to 11.6 billion dollars in fiscal year 2021 which at today’s rupee-dollar parity implies 1.9 trillion rupees though the government budgeted this expenditure at 302,506 million rupees for the current year as mark-up on foreign debt with no repayment of principal this year (as well as last year) due to the G-7 debt relief initiative enabling developing countries like ours to cope better with the Covid-19 onslaught; (iii) swap arrangements (debt) which are not indicated as debt though they form part of the country’s foreign exchange reserves rose to 4.65 billion dollars by 30 June 2021 against 3.6 billion dollars in June 2020 as has debt equity (sukuk/bonds) to 7.8 billion dollars by June 2021 against 5.3 billion dollars June 2020. In other words, if one adds the IMF injection of 2.77 billion dollars to cope with Covid-19 plus the 1.4 billion dollar emergency Covid relief in April 2020, almost 15.7 billion dollars of our healthy foreign exchange reserves can be sourced to debt; and (iv) guaranteed debt, which as per the Debt Limitation Act was not to exceed 2 percent of Gross Domestic Product, revised upward to 10 percent of GDP by the government this year, rose from 4.2 billion dollars by end 2020 to 5.3 billion dollars end June 2021 – a rise of 26 percent while external debt of public sector enterprises rose from 5.1 billion dollars end June 2020 to 6.7 billion dollars end June 2021 – so much for the government’s efforts to strengthening the performance of state-owned enterprises (SOEs).
And to complete the picture, domestic debt rose from 16.74 trillion rupees at the time the incumbent administration assumed office to over 26.2 trillion rupees by March 2021 – a rise responsible for (i) crowding out private sector borrowing as well as the cause of reluctance by commercial banks to lend to high risk ventures including to small and medium enterprises and middle to low income farmers; (ii) fuelling inflation; and (iii) a rise in debt of over 56 percent in just three years.
This data belies the government’s narrative that debt is under control and one would hope that the Prime Minister evaluates the data and formulates a policy to lower reliance on both external and domestic debt – a policy that must envisage slashing current expenditure, which rose from 5.589 trillion rupees in 2018-19 to 7.523 trillion rupees in the budget 2021-22 or a rise of nearly 35 percent.
Copyright Business Recorder, 2021