Debt liabilities

By all accounts, the country is faced with a worsening debt situation. An evidence of this is IMF's latest debt projection for fiscal 201516 which is higher by $11.6 billion compared to the estimates given in its first report in September 2013. The IMF had then projected that Pakistan's external debt would increase to $58.6 billion by 2015-16. But two years later, the agency's 9th review report estimates the external debt at $70.2 billion by the end of the current fiscal. In this connection it is relevant to note here that in the last four months the government borrowed $956 million from the commercial banks without competitive bidding to meet its foreign currency reserves requirements. In its September 2013 report, the IMF had given the country's total public debt projections under ' reform scenario' and ' no reform' scenario. Under the reform scenario, the total public debt-to-GDP ratio was to fall to 60.5% by the end of 2015-16. Under no reform scenario, the debt-to-GDP ratio had been projected at 63.6% by 2015-16. However, the latest report says that by the end of current fiscal year the debt-to-GDP ratio will be 65%, which is worse than no reform scenario.

For the next fiscal year 2016-17, the IMF's projections are $13.2 billion higher than the projections it made in its first report. The IMF has now projected the external debt to grow to $72.1 billion or 63.2% of the GDP. However, these are still lower than the $77.2 billion projections that independent economists are making for the next fiscal year. The rising pile of debt not only shows bad management but also underscores the need to implement reforms to curtail debt. But, instead of adopting reform measures to improve the situation, in its debt policy statement for 2015-16 submitted to the National Assembly, the government has tried to hide the rapid growth of external debts and liabilities in comparison to its foreign exchange earnings by excluding liabilities. The borrowings under China- Pakistan Economic Corridor and for projects financed outside the national development budget have been excluded from the debt analysis. By September 2015, the external debt, including liabilities, stood at $66.5 billion. By excluding the liabilities, the figure has been reduced to $51.9 billion. The debt analysis also excludes the average cost of debt to hide the growing costs due to expensive borrowings under Eurobonds and from commercial banks.

The government has violated the Fiscal Responsibility and Debt Limitation (FRDL) Act, as it could not bring down debt stocks to sustainable levels prescribed under the law. Despite excluding so many elements from the total debt, the repayment capacity has further weakened due to an increase in debt-to-revenue ratio. Another point of concern is that the country's ability to spend on development has shrunk further due to increased spending on debt servicing. The country's average time to maturity of external debt has also worsened, standing at 9.4 years owing to reliance on short-term loans.

The FRDL Law binds the government to keep public debt below 60% of the total size of national economy. The revenues should be sufficient to finance at least current expenditures - the two most critical conditions the government did not meet again. The public debt-to-GDP ratio was recorded at 63.5% by June last year, which was 3.5% higher than the limit imposed under the FRDL Act. It is high time the government took steps to improve debt management and initiated reforms to reduce the rising debt pile.