According to a revelation made in the National Assembly, domestic borrowing has crossed 16 trillion rupees which is more than the total annual budget outlay for the year. The Economic Survey 2016-17, released by the Economic Advisor's Wing that is administratively under the control of the Ministry of Finance, estimates the provisional gross domestic debt for the last fiscal year (2017) at 14.7 trillion rupees. As per State Bank figures, the provisional total till December 2017 was 15.4 trillion rupees. Together with government borrowing during January and February 2018, the total domestic debt is now more than 16 trillion rupees.
At present, the government faces severe resource constraints due to the reluctance of multilaterals and bilaterals to extend programme loans (budget support) due to their lack of confidence in the government adhering to the reform agenda subsequent to the completion of the three-year Extended Fund Facility by the International Monetary Fund (September 2013 to September 2016) which had required rigid quarterly monitoring. The impending elections have further eroded the ability of the Abbasi government to cut down expenditure leading to a widening budget deficit that requires plugging in through domestic debt.
Budget documents for the current year indicate that the total budgeted expenditure for 2017-18 was 4.7 trillion rupees. From the perspective of economic theory, the disparity between debt and deficit is not quite a source of concern if it is within certain limits. State Minister for Finance Rana Mohammad Afzal Khan recently claimed that Pakistan had never defaulted on its debt so far, a claim that is only partially correct as the Pakistan government's capacity to repay this debt is becoming increasingly challenging, prompting the government to reduce the rate of return on national savings schemes. Rana Afzal also held the PPP-led coalition government responsible for the sharp increase in debt. His claim was that domestic debt was 1.8 trillion rupees in 2012-13 - which is a mere 11 percent of total domestic debt of 16 trillion rupees today. It is also relevant to note here that in 2012-13, the then Finance Minister Ishaq Dar had retired 480 billion rupees energy sector's circular debt on the second last day of the fiscal year and therefore Rana Afzal may have overestimated the PPP government's responsibility in the domestic debt of that year.
Government spokesmen are saying that the domestic debt to GDP ratio is manageable and they point out that as per the Fiscal Responsibility and Debt Limitation Act 2005, the government has to inform parliament if it exceeds 60 percent. This is true but the bitter fact is that the government has been consistently understating the debt to GDP ratio - by understating the debt and overstating the GDP. As against this, the country's leading economists have pointed out that the debt to GDP ratio is close to 70 percent at present which must be a source of concern. This is so as Pakistan has no recourse to external assistance.
The government's stand on the issue of domestic debt flies in the face of ground realities. During two of its three tenures, the PML-N leadership has selected non-economists as the Finance Minister, which explains the bad state of the economy today; and this in spite of the fact that the party has well known economists within its ranks, including Sartaj Aziz. It is now too late in the day for the government to appoint a new finance minister to undertake long term planning. What it can do in the given circumstances is to manage things, cut unnecessary expenditure and increase revenue collection in order to reduce the quantum of domestic borrowing.