Real Facts about Government Debt of Pakistan

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Pakistan is in a confusing world now a days. Intelligentsia and anchors are writing and saying as far as their knowledge in concerned and on the basis of their likings and dislikings. No body of them is on track objectively. Their main focus is how to live and how to earn and this looks right from some angles.

Now in Pakistan we are under Imran Khan Government with lot of ifs and buts. His main blunder seems to be the selection of his people on important posts. For instance we take the example of Fawad Ch, Federal Information Minister and Fayaz-ul-Hasan Chohan Punjab information Minister who should have been polite and sensible always but contrarily they always come with insane arguments with filthy language.

Fawad Ch should not forget that first he lost 2002 elections by receiving only 161 votes. He then joined Musharaf’s All Pakistan Muslim League (APML). In March 2012, he quitted APML and joined Pakistan People’s Party (PPP) and was inducted into the federal cabinet of Prime Minister Yusuf Raza Gillani and than Raja Pervaiz Ashraf . Then he joined PML-Q but again lost He received only 82 votes. He is now part of PTI and is on duty to blame Zaradri whereas he was part of him sometime back.

Fayaz-ul-Hasan Chohan was elected to the Provincial Assembly of the Punjab as a candidate of Muttahida Majlis-e-Amal (MMA) in 2002 as MMA was favorite of Musharraf at that time. However as candidate of PML Q he remained unsuccessful in the next election. He is known for using foul language and name-calling against his opponents on TV talk shows and has been criticized by the media as “rude” politician.

Shortly after winning election as part of PTI and becoming Provincial Minister of Punjab for information and culture in August 2018, he stirred a controversy when he used obscene language against TV channel staff during an interview on 30 August 2018. The same day, he was videotaped passing “vulgar and derogatory misogynistic remarks” against female artists of Lollywood. Both incidents earned him severe criticism.

With their activities both look part of a circus, dancing and inviting public to join PTI.

Imran Khan should look in to these selections and bring appropriate persons in place of them.

Now coming to major problems PTI is mainly focusing on two issues i.e. Corruption and accountability and immense weight of Public Debt bringing huge deficits on Current as well on Fiscal side.

On corruption NAB is looking very active but only for 3 or 4 persons i.e. Nawaz, Shahbaz, Zaradai and Faryal. Remaining in Pakistan are absolutely honest and hajjis with no charges. Supreme Court has taken notice of this. Let us hope they may find a way.

Now coming to other main issue that is Size of Public Debt of Pakistan, we like to point out here 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 86% of its GDP in 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 many years with meager revenue collection, worst law and order situation and no electricity with gas our exports have not increased enough to bridge the gap in between exports and imports.

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 80 days is still working on the advice of experts mostly borrowed from the Musharraf 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 16.6 percent during FY18, almost twice the rate of increase recorded in FY17. As a result, the gross public debt rose by 5.6 percentage points to 72.5 percent of GDP by end-June 2018. Similar trends were observed in government debt – public debt minus government deposits held with the banking system. Thus, debt-to-GDP ratio remained higher than the 60 percent limit envisaged in the 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 and public debt to GDP ratio at 60 percent. However, the debt of the government, defined as public debt minus government deposits held with the banking system stood at 67.0 percent at end-June 2018.

The impact of other currencies’ appreciation against US dollar on the external public also increased by US$ 407 million in FY18.

In absolute terms, gross public debt reached Rs 25.0 trillion by end-June 2018, showing an increase of Rs 3.5 trillion during FY18. More than half of this record accumulation in gross public debt in a single year was contributed by public external debt, which grew by 30.1percent.

Most of the rise in public external debt came from fresh disbursements from China, foreign commercial banks and proceeds from Eurobond/ Sukuk issuance. 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 FY18. Out of Rs 2.0 trillion expansions in external public debt, around Rs 1.1 trillion was due to PKR depreciation against dollar and appreciation of major currencies against dollar. Since PKR has now depreciated to Rs 135 per dollar with the blessings of Imran Khan confused economic objectives and U-turn statements, the size of external debt has now gone further up by Rs 1093 billion in Oct 2018 in a single day.

Though a large share of external debt still comprises of concessionary loans from multilateral agencies, it may pose challenges for future debt servicing when looked in the context of the rising global interest rates and stressed external account position. In addition, the rising share of external debt may intensify the revaluation impact in case of excessive exchange rate fluctuations. Interest payments on external debt have already started to rise owing to increase in stock of external debt and upward trend in LIBOR. From the sustainability perspective, the solvency and liquidity ratios show deterioration, while indicators measuring servicing capacity show improvement due to both increase in exports and decline in debt servicing.

In terms of maturity structure, the government continues to rely on short-term borrowing during FY18. In particular, the short-term domestic borrowing of central government was almost 1.5 times higher in FY18 than in FY17. In the case of external debt, the average time to maturity of new loans also shortened in FY18 relative to FY17. The rising share of short-term instrument in outstanding debt stock has increased the government exposure to refinancing and interest rate risk.

Pakistan Debt
billion rupees
Stock Absolute change Percent of GDP
 

                     FY17

 

FY18

FY17 FY18 FY17 FY18
Total debt and liabilities 25,109.3 29,861.2 2,532.2 4,751.9 78.6 86.8  
 Gross public debt 21,408.7 24,951.8 1,732.0 3,543.1 67.0 72.5  
Total debt of the government 19,635.4 23,050.5 1,812.2 3,415.1 61.4 67.0  
Government domestic debt 14,849.2 16,415.2 1,223.3 1,566.0 46.5 47.7  
Government external debt 5,918.7 7,795.8 501.1 1,877.0 18.5 22.7  
 Debt from IMF 640.8 740.8 7.7 100.0 2.0 2.2  
External liabilities 373.8 622.3 -3.3 248.5 1.2 1.8  
Private sector external debt 1,171.2 1,600.6 462.1 429.5 3.7 4.7  
PSEs external debt 285.2 325.2 -8.9 40.0 0.9 0.9  
PSEs domestic debt 822.8 1068.2 254.7 245.4 2.6 3.1  
Commodity operations 686.5 819.7 49.9 133.2 2.1 2.4  
Intercompany external debt 361.2 473.4 45.5 112.2 1.1 1.4  
Deposits with banking system 1,773.3 1,901.3 -80.2 128.0 5.5 5.5  

In addition to public debt, considerable increase in PSEs debt, loans for commodity operations and external liabilities pushed Pakistan’s total debt and liabilities (TDL) to 86.8 percent of GDP at end-Jun 2018 from 78.6 percent as of end-Jun 2017

Contrarily Net inflow in National Saving Schemes (NSS) was recorded at Rs 98.0 billion in FY18, marginally lower than Rs 104.1 billion realized in FY17. In fact, the inflows have been falling persistently for the past three years. This falling trend mainly reflects lower profit rates and higher incidence of withholding tax on non-filers.

Macro Indicators
In % FY15 FY16 FY17R FY18
Real GDP 4.1 4.6 5.4 6.0 (now 4-5%)
Agriculture 2.1 0.2 2.1 3.5
Industry 5.2 5.7 5.4 7.3
Services 4.4 5.7 6.5 6.4
Private sector credit 5.9 11.2 16.8
CPI inflation 4.5 2.9 4.2 6.0
percent of GDP
Current account balance -1.0 -1.7 -4.1 -2.6 (now above minus 5%)
Fiscal balance -5.3 -4.6 -5.8 -4.1 (now above minus 6%)
Gross public debt 63.3 67.6 67.0 61.4 (Now around 86%)

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 2018.
  2. Still going with negotiations with IMF and other countries real austerity measures are required not by selling buffalos or just in statements. Pakistan spent a huge amount of $7.479 billion on debt serving during 2017-18 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 new 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 near about Rs 7 trillion revenue needs to be increased i.e. 15% of GDP. In this respect first requirement is for bringing legislation for Services, Agriculture, Whole Sale and Retail Sectors and then go for reshaping FBR.

Now we have to look whether Imran Khan Government is ready for these tough jobs or they just go on depending on Assad Umar for his clerical approach and Fawad Ch and Chohan for their horrible stories meant to create a deadly night for Pakistan to force everyone to go on beds.

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