In the debt trap

But Imran Khan and his entire economic team seem to have no solution at hand

Debts are not bad if utilised properly i.e. if a government uses them to spur economic growth by investing them in development projects that not only bring socio-economic progress in the country but also create jobs and generate taxes, thereby outweighing the cost of borrowing. However, that has not been the case with Pakistan. We have long been borrowing money to service the money borrowed earlier, thereby only seeing the debt pile on and on. The recent bailout agreement with the IMF is a fitting reference to the context. Of the $6 billion loans that we are to get from the IMF over the course of 39 months, only $1.85 will actually come into our coffers and the rest will serve to retire the debt obtained from the same global lender previously.

As of June 30, 2019, Pakistan’s total public debt, both internal and external, stands at Rs40.22 trillion or nearly $260 billion. The figure — when compared with the country’s GDP which was $313.13 billion as of June 2018 and $283.3 as of June 2019 — raises serious questions about the sustainability of the galloping public debt. The government, however, says it is compelled to borrow Rs1.9 trillion more by the end of the ongoing fiscal year just to finance the budgetary deficit that continues to widen because of the rising cost of debt servicing. And this rise in the cost of debt servicing is the effect of the growing volume of debt itself, as well as the SBP’s interest rate that has nearly doubled since the incumbent government took charge.

That we are in a debt trap goes without saying. The PM knows that well, and repeatedly makes a mention of that during his public addresses. But he and his entire economic team seem to have no solution at hand. The policies of the incumbent setup have rather worked to aggravate the situation by borrowing at a rate much faster than by his predecessors. For comparison, the PML-N government added Rs11.66 trillion to the public debt from FY14 to FY18 while the PTI government has, so far in 15 months, added Rs10.34 billion to the total. Time for the government to focus on a way out.

Published in The Express Tribune, February 9^th, 2020.

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