Tightening trap of debt

Debts are not bad if used on development projects to generate economic activity and create employment, thereby spurring GDP growth rate. Unfortunately, that’s not the case with Pakistan, and that’s no revelation either. We have for years and years been using debts “to continue fostering a consumption-focused, import-addicted economy, without investment in productive sectors or industry”, as also warned by a local think-tank in its recent report.

According to the 68-page report by Islamabad-based Tabadlab , titled ‘A raging fire: Pakistan’s debt crisis’, Pakistan’s total debt and liabilities — including domestic and external debt — stand at Rs77.66 trillion or $271.2 billion. The staggering debt comes to something around 78% of the country’s GDP that stands at $348.3 billion, according to the World Bank estimates. The report notes that the country’s debt per capita has grown 36% in 12 years – from $823 in 2011 to $1,122 in 2023; and its GDP per capita has declined 6% – from $1,295 in 2011 to $1,223 in 2023. This shows that the country’s debt is growing “at a much larger pace than its income”.

That Pakistan is stuck in a debt trap goes without saying. The country has over-drained all available avenues to acquire loans. It has had to take loans just to service the debts already taken, leaving no room for the debts to be utilised for investment or building wealth over long term. Unfortunately, the various IMF programmes that the country has entered into have failed to enhance its debt repayment capacity. Also, these so-called bailout programmes have been harsh enough to affect the implementation capacity of the reform measures themselves, thereby proving counter-productive. This is something that the Fund must realise while imposing conditions for loan approval.

Published in The Express Tribune, February 20^th, 2024.

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