What has the budget 2014-2015
brought in for the common man? While the answer to this question may not be
reassuring for the common man and may end up in a situation where he has no
option but to borrow, let’s see how entrenched in debt we already are.
Every Pakistani who has not borrowed
any money from any of the domestic source or international financial
institutions ever still has the debt burden of PKR 93,676 (US $954) as of March
This per capita debt of PKR 93,676
is derived by dividing total population 188.02 million over total external debt
and liabilities of PKR 17.61 trillion (US $ 179.3 billion). In comparison to
this, a country with a similar population and per capita income levels,
Nigeria’s, debt burden is as low as US $372.
At the end of March 2013, when the
last government completed its tenure, the per capita debt was PKR 84,011.
During the first 9 months of the ongoing FY 2013-14 of the current government
regime the net increase in the per capita debt is PKR 9,665.
At the end of March 2008, when the
last government took charge, the per capita debt was PKR 38,261. One can
clearly observe the increase of around 125 per cent in the per capita debt
during the last government tenure as compare to the total per capita debt from
the last 61 years (1947-2008). The net increase in the per capita debt was PKR
45,750 on average, PKR 9,150 per year during 2008-2013.
Talking about the population of
Pakistan, sadly, we do not have any updated exact population figure in Pakistan
as the last census was conducted in 1998 and since then no exact figure of
population has been given and only the estimates are being provided. The
Economic Survey 2013-14 provides the projected population of 188.02 million,
with a population growth rate of 1.95 per cent per annum and the same has been
used for calculation of per capita debt.
According to the State Bank of
Pakistan, the debt and liabilities have increased to a record mark of PKR 17.61
trillion (69.3 per cent of GDP), including domestic debt and liabilities 11.54
trillion rupees and external debt and liabilities 6.07 trillion rupees (US $
61.80 billion and 23.9 per cent of GDP) at the end of third quarter FY2013-14.
Pakistan’s debt dynamics has
undergone substantial changes in the first three quarters of the ongoing fiscal
year and in the PPP government’s five years. In the first 9 months of the
ongoing fiscal year, the public debt and liabilities were PKR 1.27 trillion.
At the end of March 2008 Pakistan’s
outstanding public debt and liabilities were 6.16 trillion rupees (59 per cent
of GDP), including domestic debt and liabilities of 3.26 trillion rupees and
external debt and liabilities US $45.9 billion (Rs2.89 trillion).
Debt limits were approved by the
parliament in 2005 through the Fiscal Responsibility and Debt Limitation Act
2005. One of the clauses of this act is “ensuring that within a period of ten
financial years, beginning from the first July, 2003 and during the thirtieth
June, 2013, the total public debt at the end of the tenth financial year does
not exceed sixty per cent of the estimated gross domestic product for that year
and thereafter — maintaining the total public debt below sixty per cent of
gross domestic product for any given year”.
However, one can clearly see that
this was not followed by the last government as at the end of June 2013,
Pakistan’s outstanding debt and liabilities stood at PKR 16.34 trillion which
was 72.7 per cent of GDP. This clearly indicates the complete failure of debt
Pakistan’s debt and liabilities have
grown very sharply over the past few years since 2008 and increasing debt
burden is eating into fiscal resources. This is also leaving severe impact on
inflation, because high government borrowing will follow anyway. This debt
situation has huge impact on growth, investment and fiscal stability.
The past debt burden has come up
from two significant features — first, to sustain the loss-making public sector
enterprises and, second, government’s continued policy of maintaining
untargeted subsidies. And the new debt has arrived due to the current
government’s appetite to fund infrastructure through Euro bonds, Chinese loans,
borrowing from multilateral institutions and perhaps soon to come Sakook bonds.
One wonders if debt financing should go into building motorways or giving
respite to the nation from energy crisis.
The management of debt crisis is
based on two points; first is debt-servicing and second debt-retirement. When
it comes to the servicing aspect of debt, one needs to focus on the
government’s capacity to generate revenues, and in that context, tax reforms
become extremely important.
But to go forward, one needs to put
in place a debt-retirement strategy, the need to generate growth. If one is not
on a high-growth trajectory, one is not generating enough revenues so that debt
can be retired. For generating growth, of course, the government needs to have
a consensus strategy having all the provinces on the same page.
In a country of around 200 million
people, only 2.6 million are NTN holders and around 0.7 million actually paid
taxes last year. The corporate sector represents only 1 per cent of overall tax
base. Out of over 50,000 companies registered with SECP, only 24,000 are NTN
holders. The agriculture sector which contributes 1/5th of GDP remains exempted
from income taxes and same is true for many of the services sectors like
wholesale and retail trade.
Due to the structural transformation
in Pakistan’s economy, several new sources of income have also appeared in the
current reporting of national income accounts at the Pakistan Bureau of
Statistics. For example, several services sub-sectors including private
doctors, tuition centres, accountants, IT and software houses and beauty
parlors fall in this category. According to the FBR claims these sub-sectors
are still out of the tax net and many continue to operate for decades in an
Taxation on agriculture income
should be debated and innovative ways to tax either through land revenue or
agriculture produce should be introduced together with enhancing of capacity of
revenue collecting authorities.
The government must follow a
stringent debt management strategy. The limits set in the FDRL must be respected.
Debt with expensive servicing requirements should be retried at the earliest
and there should be no new debt without a discourse in parliament.
This article was originally published at:
The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.