Debt trap – do we have any exit?

Government must prepare, revise debt management policy every year.

Zubair Choudhry July 28, 2013
According to latest figures, public debt has reached Rs14.3 trillion for the first time in the country’s history. ILLUSTRATION: JAMAL KHURSHID

KARACHI: Unlike many other causes of concern on the economic front, the growing debt trap is sending the economy into its worst phase in the country’s history.

The mounting burden of debt servicing leaves little to spend on social and infrastructure development on the one side and destabilises foreign exchange reserves on the other side because of flight of a huge amount of foreign currency to pay external liabilities.

The high cost of debt, which is an obvious outcome of absurd policies of the incompetent and corrupt ruling elite, is borne by the people who gain almost nothing from the heavy borrowing.

Instead of tapping the country’s own resources, the reliability on debt to achieve short-term economic ends like bridging the fiscal gap and building foreign exchange reserves is not rare. It has become apparent that a huge part of the amount borrowed from international lenders had been utilised to meet working capital needs in recent decades.

According to latest figures, public debt has reached Rs14.3 trillion for the first time in the country’s history. The debt-to-gross domestic product ratio has grown rapidly in recent years and crossed 63%, breaching the 60% limit set in the law.

With a focus on reviving the economy, the new government had announced that it would get rid of the cancer of debt immediately after taking over reins of the country for the third time. However, it seems to have done nothing significant so far and is knocking the doors of international lenders again, who bring the country’s economy under their control through the debt trap.

As the International Monetary Fund is expected to lend at least $5.3 billion to help Pakistan pay off its previous loan, the government is also approaching other lenders like the Asian Development Bank and World Bank for further borrowing. This indicates that the government is giving priority to borrowing from the donors instead of mobilising its own resources for an easy way out of the debt burden.

In this difficult situation, what is lacking is an effective debt reduction strategy. According to the Fiscal Responsibility and Debt Limitation Act 2010, the government is bound to prepare and revise the debt management policy every year in January but so far nothing has been done except for paper work after a lapse of three and a half years. So, implementation of an effective debt reduction strategy is the pressing need of time which should be based on tapping the country’s own resources through increasing tax collection.

The writer hosts business talk shows on FM 101 and Radio Pakistan and is pursuing M Phil in Economics

Published in The Express Tribune, July 29th, 2013.

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Jameel ur Rasheed | 10 years ago | Reply That is a wise article and it should be an eye opener. That fact that all the politicians have stakes abroad and in case, God forbid, something happens to Pakistan, they would have nothing to worry while leaving Pakistan. The new IMF loan program would take the national debt beyond, USD 70 billion and as said in the article Government is looking for new donors the debt would be around USD 100 billion by the time this government will complete the term. The debt is going no where. The PPP lead government tried to resolve the circular debt by issuing TFC to banks and adding the interest cost to the bills of domestic consumer. Analyst back then criticized this plan and the plan was shelved. This government has done nothing at all but changed the name of solution and issued bonds and paid off the debts. All the analyst are so quite which means, they have received their fair share of the circular debts. Only a fair person can save this country. We don't want that fair person to move his magic wand and let the things happen easily, but we want a person who atleast shows dedication in his efforts to solve the matters. Sooner we would be fed up with this PML N government we would be remembering Pervaiz Musharaf and his times, just like we did in last government's term.
Ahsan Malik | 10 years ago | Reply

There are many ways one can get out of a debt trap, but primarily it has to be through resource creation. Unfortunately previous loans were used for current expenditure rather than investing in income-generating/ loss-curtailing projects. Even today for example, the bulk payment of the so-called circular debt to the tune of $5billion has further increased debt without solving the lack-of-revenue problem due to which the debt will start piling up every passing day. If this amount had been used to solve the basic issues that cause losses and create the debt then this could've been avoided in future. However, we are going to have to face this yet again in coming months and years. . The solutions are simple. The vision to see them or implement them is absent.

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