Rising levels of debt

The government plans to raise another $3.5 billion by floating Eurobonds in the international debt markets over the next three years, in an attempt to retire earlier loans and avoid putting pressure on its own foreign exchange reserves. It plans on raising $500 million before June this year, while completing its total by 2018-19, as it moves towards international lenders to sustain its bulging debt, a situation that would be made worse when the IMF programme ends in September this year. With remittances being the only salvaging grace, Pakistan’s position in foreign exchange reserves is likely to deteriorate as exports will continue to decline given the country’s shortcomings in the area and a global slowdown that has curtailed spending.

One thing the PML-N government has achieved is its ability to ignore criticism and continue on its own path, caving in only when the situation becomes too tough to handle. Ignoring the opposition and economic experts over concerns regarding the rising level of debt and an addictive habit of resorting to more lending to retire past loans has only landed the country under a mountain of obligations. There is no doubt that the country has established a cushion to sustain imports and falling oil prices have done wonders for the current account deficit. But deep-rooted issues have still been left unaddressed. A loan should be a means to either upgrade infrastructure or improve the human development index. But when the government itself admits that the loans are only taken to retire past obligations, we know that hoping for the situation to improve is unrealistic. Given the government’s projections of the economy growing at 6.5 per cent in the next fiscal year and seven per cent in the year after that, we know that it is being too optimistic. This is where its motivation to keep borrowing comes from, while the public continues to wonder at the manner in which the government arrives at the growth figures. Pakistan’s economy grew at a little over four per cent this year and the figure is unlikely to change much, with the vicious cycle of incurring debt to retire loans continuing.

Published in The Express Tribune, March 9^th, 2016.

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