Pakistan’s debt position has arrived at an unsustainable level as the country’s debt dynamics has undergone substantial changes in the recent years. Every patriot citizen of the country who have not borrowed any money from any of the domestic source or international financial institutions ever is still having the debt liability of PKR 100,670 (USD 1,000) as of March 2015. This per capita debt of PKR 100,670 is calculated by dividing total public debt and liabilities of PKR 19.30 trillion (USD 192.30 billion) over total population 191.71 million.
At the end of March 2013 when the last government completed its tenure, the per capita debt was PKR 84,011. At the end of March 2014, the per capita debt was PKR 93,676 with an increase of PKR 9,665. And from April 2013 to March 2015 the increase in the per capita debt is PKR 16,559 (On average PKR 8,830 per year).
Talking about the per capita debt situation in the PPP government (2008-2013), at the end of March 2008 when the last government came into power, the per capita debt was PKR 38,261. As mentioned above, one can clearly see an increase of around 125% in the per capita debt during the last government tenure as compare to the total per capita debt from the 1947-2008. The net increase in the per capita debt was PKR 45,750 on average PKR 9,150 per year during 2008-2013.
The government is repeatedly claiming that per capita income has increased to USD 1,512 but it is forgetting that among USD 1,512 the amount of USD 1,000 is per capita debt, so actually the per capita income is just USD 512. Discussing the population of the country, sadly we are not having the exact population figures because of no census has been conducted since 1998 and we are supposed to rely only on estimates. The Economic Survey 2014-15 gives the projected population of 191.71 million, with a population growth rate of 1.92% per annum and the same has been used for calculation of the said per capita debt.
Coming back to the debt situation, according to the State Bank of Pakistan, the debt and liabilities have increased to a record mark of PKR 19.30 trillion (70.5 percent of GDP) including domestic debt and liabilities PKR 12.91 trillion (44.5 percent of GDP) and external debt and liabilities PKR 6.385 trillion (USD 63.68 billion and 23.3 percent of GDP) at the end of third quarter FY2014-15.
Going in details of Pakistan’s debt dynamics, one can also observe the fact that at the end of March 2008 Pakistan’s outstanding public debt and liabilities were PKR 6.16 trillion (59% of GDP) including domestic debt and liabilities PKR 3.26 trillion and external debt and liabilities USD 45.9 billion (PKR 2.89 trillion), the last government has accumulated PKR 9.33 trillion resulting a total debt and liabilities to PKR 15.49 trillion as 68.9% of GDP (March 2013). Talking about the current government’s debt accumulation, the current government has accumulated total debt PKR 3.81 trillion in just 2 years. These statistics indicates that current and last government has accumulated more than double debt of PKR 13.23 trillion in just 7 years as compared to PKR 6.16 trillion from the 61 years (1947-2008).
The parliament of Pakistan in 2005 had approved debt limits 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 percent of the estimated gross domestic product for that year and thereafter- maintaining the total public debt below sixty percent of gross domestic product for any given year”. However, one can also clearly observe that this was not respected by the previous government as at the end of June 2013, the outstanding debt and liabilities were recorded at PKR 16.34 trillion and in terms of percentage of GDP these were 72.7 percent of GDP.
This is a complete failure of debt management of previous government and if we talk about the current government’s debt management, it’s not very different from the previous government as during the first year of current government (FY2013-14) the debt and liabilities were 73.2 percent of GDP and during the first 9 months of ongoing fiscal year it stood at 70.5 percent of GDP. Therefore, current government has also failed to maintain the public debt and liabilities under 60 percent of GDP.
If we talk about debt servicing aspect it is also very high and on average Pakistan is paying around 6.5 percent of GDP annually. The present government in the 2015-16 budget has allocated PKR 1,280 billion (PKR 1168 billion for domestic and PKR 112 billion for external debt servicing) covering 31 percent of total budget of PKR 4,089 billion. Whereas in 2013-14 the government had paid PKR 1,791 billion on account of public debt and liability servicing including the interest payment of PKR 1,134 billion.
Increasing the debt burden is eating fiscal resources, leaving severe impact on inflation, growth, investment and fiscal stability. Moving forward the government needs to develop a rigorous debt management strategy, it should also respect the debt limits set in the FDRL. Government also needs to retire the debt with costly servicing requirements first and then it should not borrow without a discourse in the parliament. And for long time planning about debt servicing or debt retirement the debt management must make effective tax policy, focus on those projects which further generate more revenues, manage expenditures wisely and lastly borrow prudently ie least cost sources.
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The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.