Debt: a hard pill to swallow

Recently SBP reported a total debt pile of Rs22.5 trillion in the closing of the last fiscal year

Recently the State Bank of Pakistan reported a total debt pile of Rs22.5 trillion in the closing of the last fiscal year – June 30 to be precise. This represented Rs2.6 trillion increase compared to last year. Now, for those who like to keep themselves abreast with statistics, this one becomes difficult to swallow. For two reasons, whenever we talk about capacity enhancement and consequent increase in exports, no matter the scale, we are dealing with millions and at times in billions of rupees. However, a trillion happens to be a thousand billion – which makes it very difficult to compare. Secondly, government spending, be it development or spending, is confined to only billions at most.

The only clue that could help one digest these huge numbers comes from the budget – a Rs4.5 trillion enterprise. Of this, about a third will be spent on debt servicing, a third on the military and on-going operations under several heads and only a third will be actually spent by our elected representatives – the amount might be considerably less if we consider the running expenditure of government organisations and the fact that much of the development spending lies unutilised.

Obviously, if we would not have had the unrealistic military budget and debt pile to begin with – our elected government’s spending capacity would be thrice as much. But that doesn’t mean that government has borrowed the Rs2.6 trillion, as has been repeatedly implied, to finance its share of the budget. If one only looks at the currency value vis-à-vis US dollar, it depreciated nearly 3%, which implies that a significant chunk came just from currency revaluation. Secondly, the foreign reserves have seen nearly an unprecedented jump – this alone is a big consolation for foreign investors who no longer have to keep wondering if their investment is liquid enough. Thirdly, it is a good time for government to borrow – the interest rates internationally and locally could not be any lower. The high inflation (0.4%) in July in the US implies that this period may have approached its end – so kudos for timely borrowing. Fourthly, most of the infrastructure projects being undertaken by the present government come under the guise of CPEC. The idea is for a country like Pakistan that has over the years increasingly isolated itself from its neighbour – largely because of its military’s unchecked vigilance – to finally learn how to benefit from trade. This alone could help our country to grow like never before – and that would hopefully put an end to the apocalyptic Debt to GDP ratio analysis that never fail to remind the citizens how unstable the government is in the hands of our elected representatives – no matter who they be.

Published in The Express Tribune, September 5^th, 2016.