Debt quagmire

Pakistan’s debt graph is skyrocketing. Owing to depreciation of the rupee and subsequent upheavals on the geopolitical front, the country’s fortunes are eroding and it sits on a swelling debt of Rs50.5 trillion. The payable public dues equal 3/4th of the nation’s economy. In a horrible proportion, it increased by Rs2.7 trillion only in the month of July, and is roughly 42 per cent of the federal budget. This is an untenable proposition and solicits a quick-fix solution. The stampede of the rupee against the dollar, which now hovers at Rs239 in the open market, will continue to weaken the economy with every passing day. It is evident from the dismal statistics that revaluation efforts by the central bank have plunged the fiat by 17 per cent in almost 30 days, obviously pushing the current account deficit high.

In the last few months, estimates reveal that external debt has continued to rise at an alarming pace of 16 per cent per month. This will almost double the debt by the end of year, making it a horrendous task to frame the next fiscal budget. Pakistan’s lifeline for long has been to borrow money, and that too from international donors, adding to the already crippled side of the economy. The gigantic task to raise $40 billion this year to stay afloat is testing the nerves, as remittances are slow to come and foreign direct investment is almost naught. This summarises a more painful story for the masses who are already reeling under 44 per cent inflation and high-end energy bills.

The nation has been loaded with 12 billion rupees debt in a year, and it is still counting. How can this trap be set aside, and what measures are indispensable? There is no simple answer to that but the conviction that until and unless there is mass growth, wealth generation and an increase in exports, nothing will change for good. The rupee needs to be rescued from the clutches of a soaring greenback, and that is only likely if reserves are sufficient for at least six months of imports.

The devastation in the wake of monsoon floods will act as another factor in surging the debt, as the losses are pitched at around $10 billion. The exchequer is not in a position to fund developmental projects and the PSDP is already under Rs800 billion. Debt-servicing and expenditure on defence and civil service hardly leave any cash in hand for buckling up the economy. This is why international payables stare at around $150 billion, and the economic growth is not in a position to scale it down by any means. Pakistan has avoided defaults umpteenth times owing to the resilience of the nation. But this cannot be the case if the debt genie is uncontrollable. Time to opt for policies to get rid of it through proactive diplomacy and development.

 

Published in The Express Tribune, September 10^th, 2022.

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