Pakistan falls into debt trap

Pakistan falls into debt trap

Dr. Jassim Taqui

According to the latest statistics by the State Bank of Pakistan, Every Pakistani owes over Rs115,000 as the country’s pile of total debt and liabilities increased to Rs23.14 trillion by the end of December 31, 2016, a year-on-year increase of 10%.

The share of external debt and liabilities stood at Rs7.8 trillion, or roughly $74 billion, but the PML-N would tell you, as part of its effort to show it was a good government, that the total stock of debt – domestic and otherwise – has reduced to 69.1% of GDP from 71.1% a year ago.

But with an ever-increasing debt pile comes another problem for the country’s economic managers. Foreign exchange reserves held by the SBP have come down to $17 billion and the current account deficit has widened by 90% in the first seven months (Jul-Jan) of 2016-17, standing at $4.72 billion. Together with falling exports, near-stagnant remittances, repayments to international creditors and increasing oil prices, pressure on reserves is likely to be fiercer than it was before.

Critics say Pakistan, which completed the latest IMF program in September 2016, will be in need of another bailout package near election time, slated to be held in the mid of 2018.

There is panic among the ranks. Reserves have fallen by $1.9 billion since October 2016 and the government’s financing requirements will increase in the near-term. The current account deficit is likely to hit the $7-8 billion mark this fiscal year and debt servicing requirements will add to the pressure on the country’s reserves.

There are no more flows from the Coalition Support Fund (CSF). CPEC projects would complicate the issue since the value of 90 percent of the $46 billion- projects are met by taking loans from the Chinese banks.

In its three-year stint, the PML-N government has obtained $25 billion as fresh foreign loans in addition to borrowing Rs3.1 trillion ($30 billion) from the domestic market for budget financing, according to Ehtesham Rashid, Director General of the Debt Office at the Ministry of Finance.

In dollar terms, the government’s total domestic and foreign borrowings amounted to $55 billion during the last three years. This means that the debts of Pakistan in 3 years increased by 22.5 percent as compared the  accumulated 70 years debts.