Pakistan’s borrowing pattern

As is true for any developing economy, external financing is often vital to initiate economic reforms. However, the borrowing pattern Pakistan has developed suggests a vicious cycle where failure to pay back loans on one front leads to yet more need for a bailout through taking on more debt. The World Bank recently approved a $1.02 billion package for the country, which included $500 million to create fiscal space through privatisation, and improving transparency and governance in the capital markets. Another $100 million are for areas of Sindh blighted by floods and droughts, while $400 million are marked, ironically, as guarantees so that the country can raise further loans from international markets. As history tells us, the country has only slight progress to show for the big bucks it receives in loans.

A failure to continue with the reforms process is used as a negotiating tool for acquiring further loans and governments remain content since they aren’t looking beyond their five-year term. Meanwhile, tax rates are increased for those who are already paying their share and the end result is that you have a country where growth is penalised and tax evasion encouraged. If this wasn’t enough, sectors that are under performing, mostly due to poor policies and competitiveness issues, are granted exemptions at the expense of other sectors of the economy. Despite a faulty tax system, Pakistan still manages to push ahead by continuously knocking on the doors of international lenders. The World Bank loan, apart from other purposes, is meant for the uplift of the people of Sindh. We hope that the money is used to help those affected by natural disasters in the province. However, we fear that as in the past, the government will spend these funds without following any strategy, little concrete will be done to alleviate the people’s plight and the authorities will be left answering uncomfortable questions when the people continue to suffer. Our future generations, unfortunately, will be left paying off debts that never reached the public in the first place. 

Published in The Express Tribune, June 28^th, 2016.

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