During question hour in the National Assembly, the Federal Finance Minister, Ishaq Dar, submitted the following debt figures: Total public debt (foreign and domestic) increased by 2871.7 billion rupees during the period 1st January 2014 to December 2015 (domestic debt by 2580 billion rupees and external debt by 21.7 billion rupees). Interest on foreign loans between 1st January to end December 2013 amounted to 2315.6 million dollars (2202.6 million dollars external and 113 million dollars paid to the Fund) and on domestic debt to the tune of 2805.1 billion rupees.
The above data indicates two disturbing facts. First, the period is different with interest on foreign and domestic debt given for 2013 calendar year while total public debt data is from 2014 and 2015 calendar year in light of the fact that the Sharif cabinet was sworn in during the second week of June 2013. In addition, had data been provided for fiscal years, economists would have been able to compare the statistics stated in the budget documents? And secondly, budget documents for 2013-14 which were prepared under Federal Finance Minister Ishaq Dar's watch, gave the revised interest payments on domestic and foreign debt for fiscal year 2012-13 at 1028.7 billion rupees, a much lower figure than what was released by the Ministry of Finance to the National Assembly for the calendar year. Given that the Caretakers justifiably refused to take any decision with respect to incurring more loans, deferring negotiations with the International Monetary Fund till after the assumption of office by the elected government, the significant increase in interest payments can be attributed to the present government.
The Finance Minister's written response also revealed that 2.5 billion dollar Eurobonds were issued in April 2014 (one billion at 8.25 percent for ten years and another billion at 7.25 percent for five years) and 500 million in September 2015. The 2.5 billion dollar Eurobonds issued by the government and hailed by the Federal Finance Minister as Pakistan government's first foray into the capital market after a lapse of a decade or so, has been consistently challenged by economists on grounds that the rate of return was simply too high when compared with the rates of highly indebted countries including our peers. Relevant members of the PPP-led coalition government are on record as stating that the reason why Dr Hafeez Sheikh-led Finance Ministry did not issue the bonds was because there were no buyers at a more market-driven rate of return. The written response to the assembly also does not mention the issuance of sukuk bonds at a rate of return of 6.25 percent which was also regarded as well above the market rate. It was the discrepancy between the market-driven rate and the higher rate approved by the Ministry of Finance that fuelled speculations that the buyers of the bonds and sukuk were members and/or loyalists of the Sharif administration. This issue has been raised by members of the opposition as well as in the PPP-led Senate but what is baffling is the government's request for an in-camera briefing. This is indeed inexplicable as identity of purchasers of Eurobonds, essentially an investment decision, must not be kept a state secret.
Senator Salim Mandviwalla, the chairman of the Senate Standing Committee on Finance, stated that the government has "insisted that the amount to purchase Eurobonds was not remitted from Pakistan". Given the growing mistrust between the PPP and the PML-N, the committee decided to summon the financial advisor of the transaction to provide details of where the money for purchase of the bonds was credited from. This can be supported and one would hope that the veil of secrecy that shrouds most financial transactions during the third tenure of the Sharif administration be lifted once and for all in the interest of greater transparency and accountability.
What is more important than the stock of debt that would rise with persistent fiscal deficit is the percentage of domestic debt of the revenue. Is it rising or lowering? And, one needs to see the external or foreign debt as a percentage of our yearly forex earnings; if both kinds of debt are on a downward trajectory then we need not worry about. Debt raised from capital market needs to be utilised on development and not on recurring administrative expenditures. Thus, the primary balance needs to be positive and revenue needs to be seen as a percentage of Gross Domestic Product (GDP) which indicates buoyancy of taxation proposals. Pakistan does not enjoy the luxury of printing dollars - which are hard-earned. Thus, a debt trap of external loans needs to be avoided. Debt repayments already consume the highest percentage of our budgetary expenditure and need to be reduced to a manageable level. The Fiscal Debt Limitation Act provides a framework that should be strictly adhered to. Therefore, the Debt Office, which is presently housed in the finance ministry, needs to be strengthened. This would pay immense dividend. The level of debate on debt in Parliament needs to be raised. Only then would the people in power respond adequately.
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