Gloomy: Pakistan unable to bring down total debt, says report

IMF Fiscal Monitor says gross debt to national output ratio to remain at 63.4%.

ISLAMABAD: Like its predecessor, the PML-N government will also not be in a position to bring down the country’s total debt within the limits prescribed under an act of parliament, for at least two more years, according to latest figures released by the International Monetary Fund (IMF).

The IMF’s Fiscal Monitor, released from Washington, showed that during the current fiscal year Pakistan’s gross debt to total national output ratio will remain at 63.4%. The projected debt will be higher by 3.4% of Gross Domestic Product (GDP) from the limit determined under the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2006.

The debt projections exclude the $2 billion that Pakistan raised from international markets at exorbitant prices last week.

The government has announced that during the current fiscal year it will reduce the debt to below 60% of GDP as per statutory requirements of the FRDL Act.  But trends suggest the government will miss its goal by a wide margin. The federal government has already added over Rs1 trillion in the national debt during the first eight months of the current fiscal year, according to the State Bank of Pakistan data.

The country seems to be trapped in the vicious debt cycle as it is borrowing to retire previous borrowings, further squeezing space for spending on health and education.

The Fiscal Monitor further showed that in the next financial year 2014-15, the debt will remain above the threshold and clock in at 62.4% of GDP.

According to international standards, 60% debt-to-GDP ratio is considered relatively sustainable. But analysts, both independent and of international financial institutions, say that for a developing country like Pakistan 60% ratio is unsustainable.

Successive governments have been living beyond their means and kept heavily borrowing to finance their expenditures. The situation has become so erratic that servicing of debt is now the largest expense of the budget, followed by defence spending.

The government has so far failed to increase revenues and its tax collection fell short of the first nine months’ target by  over Rs200 billion.

According to IMF’s second review report of the $6.7-billion programme, the average maturity of total domestic public debt is close to two years and 64% of the debt is due for redemption within the next 12 months, entailing high rollover and refinancing needs.

The Fiscal Monitor has highlighted the same apprehensions. The Monitor showed that Pakistan’s gross finance needs during the current fiscal year will remain at 35.5% of the total national output. In absolute terms, the country needs at least Rs9.2 trillion during the current fiscal year to meet its debt obligations and finance expenditures.

In terms of total size of the economy, Pakistan’s gross financing requirements are second highest in the world, following Egypt whose total financing requirements are estimated at 39.4% for the current Egyptian fiscal year.

However, the government continues to believe that the planned fiscal consolidation of at least 4% of GDP over a period of three years will lower the budget deficit to sustainable levels and, consequently, place the debt-to-GDP ratio on a firmly declining path.

Published in The Express Tribune, April 15^th, 2014.

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