Do­mes­tic bor­row­ing

The Pak Banker - - FRONT PAGE -

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.

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