Pakistan’s growing burden of mounting debt

Government fails to realise consequences of accumulating liability

KARACHI: Pakistan’s economy is at the crossroads with two important developments taking place: the completion of the International Monetary Fund loan programme worth $6.64 billion last week and the next budget being the last one by the PML-N government.

These developments have left little room for progress in the economy. The country has received the IMF amount over three years and it is yet to start paying off its external debt, which has swelled to $73 billion over a period of long time.



For Pakistan this colossal debt couldn’t have come at a worse time as the country is already struggling with shrinking exports and slowdown in remittances. These challenges may not allow the government to keep the current all-time high foreign exchange reserves maintained for long.

What is worse is that the government is making close to no effort to improve the persisting conditions it only makes promises and committees for betterment without any concrete results.

Plagues of debt

The challenges to the economy from external fronts would not play in isolation. They would impact the economic decision-making at internal fronts as well. For example if the foreign exchange reserves again reach below the efficient levels then they would reduce the country’s capacity for imports, as it has happened multiple times in the past.

At its extreme, the low reserves would impact import of raw materials by local industries and thus compromise on gross domestic product (GDP) of the country.



Secondly, experiences suggested that political governments used to give maximum incentives to industries and ordinary citizens in their last budget presentations so as to gain the popular vote. Policy- makers would present these motivations in a bid to convince voters to re-elect them. However, this form of popular decision-making usually proves damaging in the long run.

The current all-time high of foreign exchange reserves has not come easy — it is the result of significant foreign debt. Pakistan’s story of debt collection is not over yet and the country is bound to accumulate more as the government is planning to raise another $1 billion through the issuance of a Eurobond.

The government should realise that collecting loans is not the solution; it needs to boost exports in order to keep reserves high.

Experts’ opinion

A three-member group of researchers belonging to the Institute of Business Management (IBM) and Pakistan Institute of Development Economies said in their abstract paper last week, “foreign aid and its volatility have a negative impact on economic growth in Pakistan under currently prevailing macroeconomic policies.”



Another group of researches belonging to Bahria University and Applied Economic Research Centre, University of Karachi, said that external debt keeps impacting export performance in the long run.

The group suggested that the government should improve the regional trade agreement and should avail the opportunity of Generalised Scheme of Preferences (GSP) plus status.

The government should also take necessary steps to reduce energy shortages and export allowances should be given to the Export Processing Zones. “These are the earliest measure that should be taken in order to minimise the negative impact of external debt on export performance in the country,” they said in the joint paper.

Former finance minister Dr. Salman Shah said that the economy was not the focus of the government, despite its claims, and remains fully occupied with political issues like Panama leaks, protests and political rallies.

In this entire backdrop, can finance minister Ishaq Dar explain as to how the country’s economic growth would accelerate to 7% in 2017-18 from?

The writer is a staff correspondent

Published in The Express Tribune, October 3^rd, 2016.

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