Reckless borrowing

Despite the fact that Pakistan has come close to the brink of default more than once, our leaders continue borrowing money like there is no tomorrow. During these past three months alone, the debt burden has reportedly soared by nearly a trillion rupees, pushing the total domestic debt up to Rs15 trillion. Although the present government was very critical of its predecessors for increasing the national debt burden by 100 per cent during its five-year term, the PML-N’s own debt management record is now no less deplorable.

The current government has, in fact, breached the debt limit of 60 per cent of GDP imposed under the Fiscal Responsibility and Debt Limitation Act of 2010. Besides internal debt, Pakistan is heavily indebted to external lenders. According to IMF estimates, Pakistan now requires $76.19 billion or 30 per cent of its per annum GDP in order to pay off its maturing loans. Based on this estimation, the international lending agency has placed Pakistan amongst a list of most indebted countries. But despite expressing concern about government borrowing, the IMF remains keen to lend more money to our country and has just signed another loan agreement, lending Pakistan $6.7 billion. This latest in what has become a long line of ‘rescue’ loans, tied to conditionalities of economic reform, has done little to help promote sustainable development which would allow the country to overcome its need to keep borrowing money.

It does not take a rocket scientist to realise that borrowing could only reduce poverty if the funds which become available are carefully invested in productive endeavours that not only generate sufficient revenue to repay the debt, but can also produce surpluses, which must be used to improve the lives of ordinary people. In reality, however, there are many slips between the cup and the lip.

The policy prescriptions accompanying loans taken from international lending agencies usually result in adoption of top-heavy strategies to induce growth, which primarily serve elite interests rather than alleviating lingering inequalities within the country. For example, encouraging consolidation of private and transnational business concerns, while downsizing public services and implementing regressive taxation schemes, achieves little in terms of poverty alleviation despite increasing government indebtedness.

Unless our economic managers can arrest the ongoing depreciation of the Pakistani rupee, our external debt burden will continue to increase. About 66 per cent of the total increase in external debt is estimated to be caused by unfavourable movement of the exchange rate since 2007-08 alone. There have also been other challenges, including the global financial crisis, the horrific natural disasters over the past few years, and the ‘war on terror’, which have all contributed to further diminishing prospects of economic growth, while causing Pakistan’s debt to spiral out of control.

The existing level of our public debt is unarguably unsustainable. Given the ever larger proportion of government revenue that has to be spent on debt (and defence) payments, there are just not enough resources left to address the basic needs of our masses. But if the government does not invest in the human development of its citizens, the prospects of long-term economic growth will also remain bleak. Unless concerned decision-makers implement a comprehensive and effective strategy to manage public debts, this vicious cycle of indebtedness will haunt our future generations, while simultaneously reducing the availability of resources needed to improve their productive capacity in an increasingly complex world.

Published in The Express Tribune, November 22^nd, 2013.

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