Soaring public debt

Caretaker Finance Minister Shamshad Akhtar has recently said that Pakistan’s public debt has shot to a 15-year high of 72% of Gross Domestic Product (GDP), and is estimated to increase to 74% by June 2019.

This is worrying news, especially in Pakistan’s case. Accumulation of debt is not entirely a bad thing if funds are spent on development projects, generate economic activity and create job opportunities. However, in Pakistan, it doesn’t seem to be the case. A majority of it is spent on retiring past loans, and service existing debt. Investment in education and meaningful infrastructure, which would benefit the country in the long run and on a sustainable basis, is nowhere to be seen.

Given that it is an election year, accumulation of debt to show off development in a bid to secure votes was always going to be the case. But in this endeavour, Pakistan has gone way beyond the threshold of its fiscal deficit, surpassing the target by 3 percentage points of GDP. This leaves very few options for the incoming government.

The country is piling on debt mainly due to its economic managers’ failure to mobilise revenue. With one of the lowest tax-to-GDP ratios in the world, it comes as no surprise that the country has found it difficult to invest in long-term projects. Corruption and general lethargic attitude towards contributing to the country’s tax revenue have put Pakistan in a position where it cannot undertake any meaningful project — be it dams or schools — without looking at potential donors.

It is disappointing that a population of over 200 million could only contribute Rs3.8 trillion in the entire fiscal year, pointing to issues on both sides — the public’s inability to contribute more, and the government’s lack of revenue to be able to provide facilities to a huge number of people.

Published in The Express Tribune, July 14^th, 2018.

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