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EDITORIAL: State Bank of Pakistan (SBP) has uploaded government debt figures on its website that support the view of independent economists and publications, including Business Recorder, that debt during the sixteen-month-long Pakistan Democratic Movement (PDM)-led government rose dramatically – total debt as well as the rise in percentage terms.

Total debt rose from 47.8 trillion rupees end June 2022 (with an average rupee-dollar parity for the fiscal year at 204.3 rupees as per the Pakistan Bureau of Statistics) to 60.8 trillion rupees end-June 2023 (average rupee-dollar parity at 286.5 for the year).

This differential in the external value of the rupee accounts for the rise in external debt from 16.7 trillion rupees end June 2022 to 22 trillion rupees end June 2023 – a claim that is backed by two factors supported by empirical evidence: (i) long-term borrowing from multilaterals and bilaterals dried up completely after the seventh/eighth review was signed by the PDM’s first economic team leaders namely Miftah Ismail and Acting Governor SBP Murtaza Syed mid-August 2022 as after the appointment of Ishaq Dar as the Finance Minister these inflows ceased due to Dar’s violation of the seventh/eighth review agreement with the International Monetary Fund; and (ii) short-term borrowing and debt equity (sukuk/Eurbonds) was at too high a cost due to the suspended Extended Fund Facility (EFF) programme.

The bulk of the rise in government borrowing was therefore from the domestic market with long-term domestic debt rising from 20.8 trillion rupees by end June 2022 to 29.3 trillion rupees end June 2023 and short-term debt rising from 6.8 trillion rupees to 9.3 trillion rupees. This is a highly inflationary policy and majorly contributes to the July 28.3 percent Consumer Price Index.

Three observations are in order. First, savings schemes (net of prize bonds), available to the general public (with no access to private investors and only the government eligible to borrow), declined from 3.2 trillion rupees end-June 2022 to 2.9 trillion rupees end June 2023 – a decline of 12 percent attributable to the rise in annual CPI from 8.4 percent in 2021-22 to 24.9 percent in 2022-23.

With the recent significant rise in utility and petroleum prices, which have a significant across the board impact on the prices of several items, including transport of goods and people, the capacity of private individuals to save in these schemes will be further compromised in months to come.

Second, the government unwisely used these savings of mainly private individuals as well as the rise in domestic borrowing to fund current expenditure.

The 8.7 trillion rupees budgeted as current expenditure for 2022-23 was approved by the IMF as a prior condition of the seventh/eighth review; however, the revised estimates for the year indicate that this was inexplicably raised by a whopping 1.8 trillion rupees – inexplicable because the country was facing the looming threat of default.

It is no surprise that nearly 1.3 trillion rupees was due to a rise in the markup on domestic debt while 439 billion rupees was revised upward due to a 66 percent increase in subsidies from what was budgeted again an inflationary policy as it is not backed by increase in output.

And finally, the growth rate for last fiscal year is 0.5 percent with even more concerning macroeconomic data was released by the Finance Division in the monthly Economic Update and Outlook report for July: remittances down by 13.6 percent last fiscal year compared to the year before, exports down by 14.1 percent, Foreign Direct Investment down by 24.8 percent, foreign exchange reserves rose to 8.79 billion dollars, (mainly debt acquired after the then Prime Minister Shehbaz Sharif engaged directly with the IMF as his economic team leader was visibly sabotaging a staff-level agreement), fiscal deficit rose by 34.1 percent in 2022-23 compared to the year before, credit to private sector plummeted by 98.2 percent and large-scale manufacturing registered negative 9.9 percent growth for last year compared to the year before.

It is becoming increasingly compelling for the economic team to consider some measures to spread out the cost of domestic debt. This would have to be done in a way that does not seriously impair or damage the balance sheets of local banks. This would require innovative steps in the fiscal domain.

Pakistan’s past finance ministers, with no exception, typically blame their predecessors for all the ills in the economy while continuing policies that sustained elite capture of our economy – in terms of both expenditure and revenue. All structural reforms in our poorly performing sectors (particularly energy, tax collection and state-owned entities) remain unimplemented.

It is noteworthy that Pakistan is currently on its 24th IMF programme (Stand-By Arrangement) with conditions that have become steadily harsher and more upfront with time, simply because structural reforms were never implemented. To conclude, one can only hope that valuable lessons have been learned by whoever heads the finance ministry after the elections though past precedence does not provide a comfort level.

Copyright Business Recorder, 2023

Comments

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KU Aug 22, 2023 02:58pm
No amount of shame or remorse can shake the leaders' firm belief in corrupt practices. The masses are not aware of their heist nor can do anything, especially now when every question they raise or criticism of public organizations will land them squarely in jail with a strong after-taste of treason. The article should have included data on ''The People Debt'' since increasingly everyone is accumulating it to survive the day, week, and month. We have no option but to enjoy bite-size human rights and democracy until something gives.
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Tulukan Mairandi Aug 22, 2023 05:39pm
Government debt, country death
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Muhammad Kaif Aug 23, 2023 08:21am
We have make our economy strong because " A strong economy is the strength of Nation"
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MAHBOOB ELAHI Aug 23, 2023 04:34pm
We have ODIOUS DEBT.....borrowings by kleptocracy and laundered....looters enjoying, masses sufferein
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