Per capita debt burden

The debt burden on the average Pakistani has increased dramatically over the last two years, according to the latest Fiscal Policy Statement. Per capita debt stood at Rs175,000 at the end of last fiscal year, an increase of 46%, or Rs54,901, on every citizen since the incumbent PTI government took power. The policy statement also shows that the government failed to meet the requirements of the Fiscal Responsibility and Debt Limitation (FRDL) Act by failing to keep the federal fiscal deficit under 4% of GDP. The actual deficit was more than twice as much as that limit — 8.6%. The policy document itself was also extremely short and it left out several important details. A report in this newspaper suggests that this was intentional and may also have violated the FRDL Act. The only possible reasons to do this would either be to cut costs by saving paper, or avoid revealing information that could have been embarrassing for the government. We believe the latter is more likely.

One of the oddities in holding back data is that everyone already acknowledges the impact that the Covid-19 pandemic had on the economy, including a reduction in tax revenue due to reduced economic activity and the pandemic relief that had to be provided to the people. The statement would have only provided a hard number. But other details are harder to blame on the pandemic. Development spending as a share of GDP was the lowest in 10 years, yet total expenditures in terms of GDP was the highest since the 90s. Also, the increase in the per-person debt burden was actually less last year than the year before, implying that the reigning pandemic is not the main factor. The government continues to blame its predecessors, citing interest payments on the previously accumulated debt. But over two years in, and with significant debt of its own accumulated, we are well past the time from blame and should have been seeing solutions.

Addressing debt has two main pathways: pay it down, or ensure that economic growth outpaces debt. Unfortunately, we are led to believe that the government doesn’t have plans to do either, since the finance ministry also deleted details of its budget strategy target.

Published in The Express Tribune, February 14^th, 2021.

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