Debt spiral

Pakistan's public debt soared to a record Rs80.5 trillion as of the end of the previous fiscal year, and there is no evidence that the pace of growth will be controlled in the near future. The figure represents an increase of Rs9.3 trillion in just one year, with the government borrowing an average of Rs25.4 billion a day during the last fiscal year. Such reckless accumulation of debt has pushed the debt-to-GDP ratio to 70.2%, violating the Fiscal Responsibility and Debt Limitation Act, which mandates a reduction to 50% by FY33.

It is worth noting that most modern economists are less concerned by the overall debt figure and instead prioritise keeping debt-to-GDP at a manageable level. In Pakistan's case, that would require a significant reduction, or at least a conscious effort to keep the ratio from rising. Instead, the pace at which debt is increasing is unmanageable, underscoring a profound failure of fiscal governance and threatening to cripple Pakistan's economic future.

The implications of high debt and servicing costs are hitting every sector of the economy, but perhaps no one more than public services, as nearly half of all federal spending is now devoured by debt servicing, leaving scant resources for critical development projects, social services or infrastructure.

In these circumstances, the recent floods have further exacerbated the situation by destroying crops and displacing millions, and inflating food prices. Meanwhile, external debt repayments could hit a record $23 billion this fiscal year, if we include the $12 billion in temporary deposits from allied nations like Saudi Arabia and China. While the friendly nations will almost certainly allow the funds to roll over, a change in attitude towards Islamabad could have terrifying consequences. The only way to control the debt is by containing spending while encouraging investment in all areas, but especially climate-resilient infrastructure.