In February 2019, Prime Minister Imran Khan vowed to bring the public debt below Rs20 trillion. But since he became prime minister and the PTI started running things last August, the federal government has already added Rs7.5 trillion to the public debt. Clearly, Prime Minister Imran likes a challenge.
The general government debt, including guarantees and IMF borrowing, rose to 88 per cent of GDP by the end of the previous fiscal year, according to a recent IMF report. That report blames the increase in debt on fiscal slippages, exchange rate depreciation, and the government’s decision to increase its cash deposits to cushion against potentially unfavourable market conditions. In a statement issued on Wednesday, the finance ministry said that Rs3.7 trillion out of the total increase was on account of budget deficit financing. Meanwhile, the State Bank of Pakistan is under pressure to cut the policy rate, which is 5.75 per cent higher than the core inflation rate of 7.5 per cent, with critics citing its impact on the increasing cost of debt servicing.
In fact, debt servicing alone is projected to cost Rs3.2 trillion for the ongoing fiscal year, or 60 per cent of the FBR’s revised target for this year. Coupled with reports that the FBR’s revenues are not growing at the pace desired by the IMF or even to help reduce debt growth, FBR Chairman Shabbar Zaidi is under immense pressure to bring something to the table that works. Unfortunately, the only thing that has been forthcoming was a leave application — the FBR chief is on leave for two-week for medical reasons.
The ailing economy may be infectious.
Published in The Express Tribune, January 11th, 2020.
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