Borrowing beyond means

Central government debt rose by over Rs7 trillion in the last calendar year, representing an unsustainable increase of almost 10%. The unchecked pace of increase should alarm every Pakistani because, regardless of any rosy promises by politicians, the hard numbers show that the state is becoming less economically viable for coming generations. Our parents grew up in a country that could have become developed in their lifetimes. Poor governance left us to grow up in a country that could, at best, be a developing world leader in our lifetimes. We are now leaving our children with what could be a perennial contender for the world's worst-run country.

The debt data reflects this. Even though we were able to control external debt, domestic debt kept rising, as the penniless government was forced to borrow to fill its coffers. The only other option would have been to print money, which would cause massive inflation, or the most unlikely scenario of actually raising revenue through effective tax policymaking and collection, and well-oiled operation of state-owned enterprises. Another concern is the relatively high amount of short-term borrowing, which is more expensive and, given the government's precarious finances requiring it to borrow more to pay off older loans functions almost like a predatory loan. For the broader economy, it also means less money is available for private investment, as banks and other financial institutions will prefer investing in government bonds rather than riskier investments in industries or entrepreneurs.

Meanwhile, rising debt-servicing costs leave even less money available for education, healthcare and infrastructure. As a general rule, debt itself is not a problem as long as economic growth outpaces it, effectively decreasing the debt-to-GDP ratio and making it more sustainable, even if the raw number is still rising. Unfortunately, Pakistan has never gotten anywhere close to the GDP growth numbers necessary to do this. Without a relatively quick resolution, debt management will cannibalise resources available for private investment and job creation, leaving us with a future of crushed dreams.