Real Facts about Government Debt and Deficits of Pakistan

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Every one sitting on the PTI side says that every fault on the lack of governance, detioration of economy and ambiguity in political scenario are due to past governments naming Zardari and Nawaz Sharif. In the past governments even they skip Musharraf who is on the list of Supreme Court cases for his wrongdoings but now is hiding in foreign countries.

In respect to government borrowings everyone including Hamad Azhar says that its built up has been done by Zaradri and Nawaz Sahrif and the sufferings of common man are due to PML N and PPP past governments. However when one looks in to the figures and facts, he finds that these allegations are part of PTI propaganda with not a word of any truth.

In respect of size of Public Debt of Pakistan, first of all we would like to point out that in fact size of Government debt is not an issue as most of the advanced countries carry more debt than Pakistan in terms of their GDP. For instance Italy carry 131% of its GDP, Jamaica carry 117% of its GDP,  Japan carry 224 % of its GDP,  Portugal carry 128% of its GDP,  Singapore carry 115% of its GDP, USA carry 104% of its GDP, Greece carry 180% of its GDP. On the lower side East Timor carry 0% of its GDP, China carry 16.1% of its GDP, Saudi Arabia carry 22% of its GDP, Bangladesh carry 27% of its GDP, Turkey carry 30% of its GDP, whereas Pakistan carry Public Debt of 104 % of its GDP in FY 2019 as compared to 86% of GDP in FY 2018.

Hence the main question is not the size of government debt but the question that whether the countries or Pakistan can repay its debt without making life of the common man miserable.

For the last one year with meager revenue collection, hospitals full of Dengue patients, Business community on the roads and no electricity with gas, nothing has been done by the government except putting Firdous Ashiq Awan and Fawad Ch like spokespersons to boast for the government and abuse all those who differ with the government.

The export import gap has however come down to 4.8% of GDP due to fall in size of imports i.e. $ 52 billion in 2019 against $ 57 billion in 2018, thus shrinking the balance of trade gap from $ 32 billion in 2018 to $ 28 billion in 2019.

Musharraf period did not use a single penny to improve electricity and Gas supply. PPP and PML N tried to work on these projects but corruption and vague planning did not bring the desired results. Current government of Imran Khan with its one year is still working on the advice of experts mostly borrowed from the Musharraf and Zaradari tenure.

The rising macroeconomic imbalances, the widening of twin deficits in particular has quickened the pace of debt accumulation and this again effects the widening of twin deficits. The gross public debt grew by 32.7 % in 2019 as compared to 18.2 percent during FY18.

Gross Revenue in FY 2019 remained at Rs 4.9 trillion against Rs 5.2 trillion in FY 2018. Government expenditure increased to Rs 8.3 trillion in FY 2019 against Rs 7.4 trillion in FY 2018.

Inflation has jumped to CPI with 11.6% in Sept 2019 with core inflation at 8.5%. Since in monetary policy, SBP counts for core inflation hence its discount rate at 13.25 with a gap of 5% from core inflation looks absolutely on the higher side.

Fiscal Responsibility & Debt Limitation Act (FRDLA), 2005. FRDL Act, 2005, as amended in June 2016, requires government to contain the fiscal deficit at 4.0 percent ( 8.9 % in 2019) and public debt to GDP ratio at 60 percent (104% in 2019).

Most of the rise in public external debt came from fresh disbursements from China, foreign commercial banks. Besides, revaluation losses due to appreciation of international currencies against US dollar and depreciation of PKR against US dollar, explain this high growth in public external debt during FY19. Out of Rs 3.2 trillion expansions in external public debt, around Rs 1.6 trillion was due to PKR depreciation against dollar and appreciation of major currencies against dollar. Since PKR has now depreciated to Rs 156 per dollar with the blessings of PTI confused economic objectives and U-turn policies, the size of external debt has now gone further up by Rs 1,657 billion in FY 2019.

Now coming to the steps that how government should go for reducing its debt, following steps are essential.

  1. New legislation for government borrowing is required. Still Public Debt Act of 1944 is in vogue in Pakistan. The writer is ready to extend its services for that. If they just look in to web- (islamicfinancecaif.com) they would find a draft in this respect for 2019.
  2. Pakistan spent a huge amount of $ 9.6 billion as debt servicing in FY 2019 as compared to $5.9 billion in FY 2018 which shows that debt burden is consuming a lot of financial resources of the country. Hence instead of depending on debt sources to run the affairs of the country, the government should focus on indigenous sources and adopt austerity measures to control unnecessary expenditures.
  3. Loans should be exclusively spent on developmental projects and for current expenditure nearing about Rs 8 trillion, revenue needs to be increased to Rs 8-9 trillion i.e. 15-16 % of GDP. In this respect first requirement is that to bring legislation for Services, Agriculture, Whole Sale and Retail Sectors and then go for bringing everyone in tax net and reshaping FBR for its recovery. Ironinicaly leading business persons like Razzaq Dawood, Arif Habib, Sahukat Tareen etc are sitting in the government but our tax recovery is on the lower side.
  4. Reduce SBP prime rate to 11% instead of 13.25%.

Now we have to look whether Imran Khan Government and its institutions are ready for these tough jobs.

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