Pakistan’s total debt, comprising both internal and external loans, has soared to record highs and currently stands at about 68 per cent of GDP. ILLUSTRATION: JAMAL KHURSHID
The country is already in a vulnerable position with our dependence on inflows of foreign exchange. The circular debt is crippling the economy. We are treading dangerously when it comes to the energy situation where we literally have to shut down one part of the economy to power another.
This may not seem serious considering that there are countries that have debt-to-GDP ratios that are much higher. Take for example, the United States with a debt-to-GDP ratio of about 100 per cent and Japan with a ratio of 233 per cent. But this is nothing new. Japan has had enormous debt for years following its stock market and real estate crash of the early 1990s, and — as is the case with the United States — Japanese government bonds still yield next to nothing. Higher debt ratios can be manageable, but if the country and its economy have the ability to repay the debt, which is not true in Pakistan’s case.
We have been — for a while now — in a situation where debt servicing eats up a substantial portion of our financial resources every year. The lack of development spending, and the focus on defence spending, debt financing and non-development expenditures of a top-heavy government and bureaucracy is the recipe for this disaster. We are headed towards a situation where we will have no choice but to take on new debt to retire old. This will leave precious little for development and infrastructure spending. Let us not even talk about already ignored sectors such as education, health and social development. It is a vicious cycle.
If the current situation continues unchanged and debt continues to outpace GDP growth, Pakistan once again faces a very real chance of defaulting. It is sad that our greatest burden, the war on terror and the negative impact it has had on our economy, may be the only thing that saves us in the end. Pakistan’s involvement in the war on terror and the US presence in Afghanistan will guarantee that Washington will continue to bail us out, for now.
Published in The Express Tribune, January 24th, 2013.
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@Manju: "Pakistan’s total debt, comprising both internal and external loans, has soared to record highs and currently stands at about 68 per cent of GDP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! God only should save you… Whether the almighty chooses to save you – God only knows.."
Such a condescending attitude is misplaced. India's current debt to GDP ratio is 70% - higher than Pakistan.
India is better placed than Pakistan in dealing with its debt due to higher tax to GDP ratio in terms of domestic debt and a better mix of internal to external debt in terms of foreign debt.Still such gloating is completely unjustified.
@Manju:
A friend is one who feels for the other, but surly not the one trying to belittle especially when chips are down . Time will change as wheel.
@ Roni It is the the production of bombs and missile alone that has increased the debt burden. The fiscal irresponsibility of the ruling political elite has contributed to larger extent to the emerging situation of debt trap.
Pakistan’s total debt, comprising both internal and external loans, has soared to record highs and currently stands at about 68 per cent of GDP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! God only should save you... Whether the almighty chooses to save you - God only knows..
Yes. This is what I have been saying all along. The day America leaves Afghanistan is the day of reckoning for Pakistan. It will free Taliban from fighting America and concentrate its energies on Pakistan. America will be less interested in Pakistan and so will be IMF, WB and ADB. Expect a free fall of the Pakistani rupee in the near future.
Pakistan's ongoing nuclear weapons program, missile plans, Drone development are mostly covert. The nuclear program all weapons oriented is made by buying everything in black market at exorbitant prices. The programs started with the promise that we would eat grass but make the bombs. The rest is history. The bombs and missiles do not protect us from our homegrown terrorists but a huge burden on the economy. In addition no knowledge or resources are devoted to produce nuclear energy for peaceful and industrial purposes. As long as we remain mercenary foreign aid would continue to save us but not for long. Listen to the fat lady singing.