Massive rise in foreign debt
Despite record remittances and exports, Pakistan has already borrowed over $12 billion in the first 11 months of the current fiscal year. That whopping 63% increase over last year is a reminder of the many underlying problems that economic managers need to address. While debt figures are always relative, many Pakistanis are old enough to remember when the total foreign debt hit $12 billion in 1983.
Ministry of Economic Affairs data shows that most of this new debt was due to a calculated effort by the government to shore up foreign exchange reserves. That strategy may have its merits, but those generally only apply if the borrowing was at favourable rates. Unfortunately, the same data also shows that over half the loans were at commercial rates, which are significantly higher than those through international financial institutions such as the World Bank or the Asian Development Bank. It seems off that a government that complained about being saddled with mountains of debt by its predecessors has chosen to willfully and unnecessarily borrow at such high rates. This new mountain will be even more expensive to pay off, or, given our history with debt, to reschedule.
At the same time, the remittance boom might get wiped away by the end-of-year cash outflows from international payments. There is also the fact that the remittance boom is not permanent, as a significant portion is attributable to overseas Pakistanis moving back due to job losses or other issues abroad due to the Covid-19 pandemic. Then there was the ‘silver lining’ of the pandemic — debt rescheduling and payment deferrals. Unfortunately, we still owe that money, which is why the government’s recently asked the National Assembly to approve Rs26.3 trillion in borrowing just to pay existing loans and interest. That amount in itself is over 80% higher than the demand in the ongoing fiscal year. Interest payments alone account for over one-third of the national budget.
PM Imran Khan had once promised to cut total debt from Rs30 trillion to Rs20 trillion — a 33% decrease. Unfortunately, while we have been living through the austerity drive that would be considered necessary to achieve that goal, debt has actually ballooned to Rs45 trillion — a 50% increase. We shudder to think what the next austerity drive holds.
Published in The Express Tribune, June 30th, 2021.
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