A heavy debt

The federal government's debt had surged to Rs83.6 trillion by the end of June, representing an increase of Rs5.8 trillion, or 7.3%, within a single fiscal year. More alarmingly, the SBP's latest debt bulletin shows that the debt has swelled by 75% over the past four years, adding Rs35.8 trillion to the pile. While debt itself is not necessarily a bad thing, and the debt-to-GDP ratio has actually improved in the last few years, the figure remains worryingly high and a cause of great concern for investors inside and outside the country. This is because almost half of the federal budget is still dedicated to debt-servicing costs, meaning that money desperately needed to improve critical infrastructure and provide essential services such as health and education is instead diverted to pay for the financial mismanagement of decades past. For the current fiscal year, over Rs8 trillion is earmarked solely for interest payments.

It is also notable that the government does not even appear to be trying to meet the legal requirements of the Fiscal Responsibility and Debt Limitation Act, which mandates a reduction of debt by 0.5% to 0.75% of GDP every year until the debt is brought below 50% of GDP. In their quest for silver linings, government supporters have been quick to note that almost all of the new debt added in recent years has been domestic. But while this does mean savings of foreign exchange, it is still a financial burden being placed on the shoulders of taxpayers. Citizens will take a hit regardless of whether loan payments are cashed here or abroad.

The government must do more to make the debt sustainable, instead of trapping future generations in a cycle of indebtedness. Fiscal discipline must transcend IMF programmes and become a matter of national priority. The government must also urgently rationalise expenditure, enforce provincial fiscal responsibility and broaden the tax net with uncompromising rigour. Without such corrective measures, economic self-reliance will remain a distant dream.