Any individual, institution or even a country that is unable to pay its debts is classified as bankrupt. Today Pakistan government’s total debt stands at around Rs22 trillion domestically and over $75 billion internationally, making it a cumulative Rs30 trillion. Our official GDP is also around Rs30 trillion.
The last 30 years during which we had seven general elections and one military takeover have been synonymous with unplanned growth and, with the exception of a few years, irresponsible economic and financial policies. Today our penchant for spending much more than we earn as a nation has landed us in the most serious economic and financial crisis since independence.
Our traditional way of continuing to borrow to meet our ever rising expenditure and debt repayments is reaching a saturation point. The absence of long-term economic and financial policies and goals has exacerbated the situation, and the government has been forced to rely on a makeshift advisory board and a successful businessman from Karachi with little understanding of economics.
Today we are stuck with massive bills which our government must pay in order to survive. Our myopic reliance on our friends like Saudi Arabia, China and Turkey from whom we can borrow in a relatively easy manner is no solution to our problems. It only adds to our debt.
Apart from that the PML-N government has continued to borrow almost Rs6 billion every day in domestic markets since it took over power. The terrible insouciance demonstrated by decision makers and the exclusion of the top economic brains from policy making so far has made us drift in the sea of uncertainty for too long and the impending disasters fore spell a doomsday scenario.
Let us briefly look at some broad figures which can give us a clearer picture of our balance sheet. This year the government is expected to earn about Rs3,500 billion and spend over Rs6,000 billion. So we are expected to spend Rs2,500 billion out of our pocket. Then we have that nagging and ever growing trade deficit which has reached a figure of almost $35 billion this year.
It is not clear how much of the previous trade deficit, totalling more than $50 billion, is still outstanding and how will it be paid back. On the other hand, we are lucky that home remittances from Pakistanis living abroad have been touching close to $20 billion annually and are helping us reduce our atrocious trade deficit.
Then comes our foreign debt repayments and other liabilities which, according to the IMF, we need to pay this year. It adds up to more than $12 billion, leaving us with a net negative figure of $750 million in our foreign exchange reserves. In reality, we have never had any such reserves and any foreign currency lying in the country is counted as part of our reserves. In other words our foreign exchange treasury is totally empty. Lastly, the current account deficit has crossed over a billion dollars.
The extravagance of our ruling class in the last 30 years, the whims of democratic dictators, the fascination with ill-planned and unneeded extravagant big projects, resulting in big commissions and an ever growing bureaucracy, have sucked up the extra printing done by the Security Printing Press.
There is no accepted formula as to how much currency can be printed in a financial year and the traditional way has been to print enough to cover the budget deficit. But even this is dictated by our subservience to the IMF’s immature policies where young Ivy League types follow a 50-year-old formula that regard controlling inflation as more important than controlling the budget and have forced upon us unjustifiable budget deficit ratios which have stifled growth.
It is time to come out of the box. Give the ailing economy what it needs. If printing more money can be invested in the priory areas and can add to the productivity and efficiency of the economy so be it. Japan and Turkey tried it in the 90s and 80s and pulled their ailing economies out of recession as they injected massive funds into infrastructure and social projects while creating jobs.
Traditional economic theories postulated by the IMF and World Bank have failed consistently in the developing world owing to corruption of the rulers. Venezuela, Nigeria, Angola, Congo and Libya, the oil rich countries remain mired in poverty, poor governance and massive corruption.
Pakistan is not far behind, saved perhaps by the life line provided by home remittances every year. Otherwise the lifestyle of our ruling class which has looted this country in the last three decades has been a mark of prominent and permanent shame for us here and abroad.
The biggest residential homes in the country belong to Nawaz Sharif and Asif Zardari – the men who ruled for themselves and their cronies. And expanded their wealth beyond belief. The corruption charges against them are well-known to the nation beset by a faulty weak and unjust legal code.
And the black economy. Ignored but patronised by our rulers, it is estimated to be close to 50% of the white or official economy, escaping the octopus arms of an aging, politically influenced FBR which has failed to prop itself up without the crutches provided by successively corrupt governments.
So are we really broke? Can we pay our current debts? Or long-term debts? Can we borrow more internationally without compromising our sovereignty? Can we successfully revive our economy and turn it around? The answer has to be yes and no. In the box traditional solutions will be difficult. Out of the box solutions are there. See the examples of Turkey and Japan. But that requires a lot of guts.
From 1988 to 1999 the PPP and PML-N made a mess of our economy. From 1999 to 2008 Musharraf failed to introduce the dynamic policies which could have catapulted us into a totally new paradigm. And from 2008 to 2018 the economy was ruled by greed and feverish accumulation of wealth by the rulers.
We can still prevent the impending disaster but then we must tighten our belts, stifle our greed and open the hidden potential of our economy and bring in honest and bold leadership.