Debt piling up: Borrowing reliance surging to finance twin deficits: World Bank

ISLAMABAD: The World Bank on Friday said Pakistan’s economic model is unsuitable because the country’s borrowing reliance has been increasing to finance the twin deficits - fiscal and current account – and consequently, the debt level was piling up.

This was stated by Mathew Verghis, Regional Director South Asia, Equitable Growth, Finance and Institution, in his keynote address at the launch of “Reforms for a Brighter Future-Time to Decide” by the WB on Friday.

Verghis added that the country has been spending a lot more than its revenue and on external account it was importing more as opposed to its exports. As a result, its reliance on domestic and external borrowing has been increasing and consequently, its debt level reached 80 percent of the GDP, he continued.

He said that the good news is that Pakistan’s bright future is possible by leveraging its youth. He added that natural resources and location make it vibrant to achieve 7-8 percent GDP growth per annum.

Verghis said that the crisis also provides an opportunity to bring about critical reform. Verghis further stated that political instability and uncertainty are the primary reasons for low investment in the country and added that there is a need for a committed credible and capable government. He also stated that there is a need for political consensus for difficult reforms.

The WB regional director further stated that Pakistan has been lagging behind in the region in terms of GDP and per capita income and its average GDP growth was significantly low compared to other regional countries.

The Country Director for the World Bank in Pakistan, Najy Benhassine, said that Pakistan has been facing numerous economic hardships including inflation, rising electricity prices, severe climate shocks, and insufficient public resources to finance development and climate adaptation when the country is among the most vulnerable to climate change impacts.

He added that it is also facing a “silent” human capital crisis- abnormally high child stunting rates, low learning outcomes, and high child mortality. These discussion notes, he said would contribute to debates on long-standing policy issues that are muting Pakistan’s high economic and development potential.

There is reasonable consensus on priorities and challenges, however, determining specific solutions requires open debates on concrete, fundamental policy decisions. He further stated that WB hopes this programme of discussions will help build a consensus around a path towards inclusive, sustainable, and climate-resilient development. He said it is time for Pakistan to decide on fundamental policy shifts to durably steer the economy towards stronger, more climate-resilient and sustainable growth and development.

The speaker said that the WB together with the Pakistan Institute of Development Economics (PIDE), conducted extensive consultations across the country to seek inputs and feedback on the recommendations included in the draft Discussion Notes. These have included discussions with students across 21 universities and provincial roundtables with thinkers from academia, and the public and private sectors. Participants in all four provinces have shared insights and perspectives that have helped shape the understanding of what it would take to put Pakistan back on a path towards sustainable, climate-resilient, and inclusive growth, the event was further told.

According to the WB statement the notes, which draw on international experience as well as a large body of evidence on Pakistan, propose fundamental policy shifts that are needed to move away from the current low-growth, anti-development status quo and from underfunded, inefficient, and fragmented service delivery and social protection systems towards coordinated, efficient, and adequately financed service delivery, targeting the most vulnerable—in particular to reduce abnormally high child stunting rates and to increase learning outcomes for all children, especially for girls.

From wasteful and rigid public expenditures benefiting a few, towards tightly prioritised spending on public services, infrastructure, and investments in climate adaptation, benefiting populations most in need.

Copyright Business Recorder, 2023