According to the report of Pakistan's Economic Survey, the volume of debt in the country has reached Rs 38,006 billion. Which is equivalent to 87.6% of its GDP. In other words, Pakistan has borrowed more than 87% of its gross national product, which is currently estimated at Rs 47,709 billion (US 29 299 billion).
Compared to Bangladesh, which is part of Pakistan, its total debt is only 38.9% of Bangladesh's GDP. China's debt has risen sharply to 54.6 per cent, Russia's 19.48 per cent and India's to 89.6 per cent of its GDP.
At the end of last year, Pakistan's gross domestic product (GDP) was 41,556 billion rupees (3 263 billion), bringing the total GDP growth by 14.8% within a year.
But at the same time, the volume of loans has increased by 1.7% compared to June 2020, according to the data as of March this year. Which was 85.9% of GDP at that time. The National Economic Survey expects the rate to fall below 84% by the end of this fiscal year.
Past data shows that from 1971 to date, Pakistan's debt volume has been steadily increasing for one year. But it has risen sharply since 2007.
At the end of 2008, Pakistan's total debt was Rs 6,127 billion, which increased to Rs 14,292 billion in June 2013 (after the end of the PPP's five-year rule). This trend continued even after that.
At the end of 2018, when the PML-N government was leaving, the total debt of the country increased to Rs 24,953 billion.
Since then, in the three years of the PTI government, it has grown even faster and has so far surpassed Rs 38,000 billion. Of this, domestic debt is Rs 25,552 billion and external debt is Rs 12,454 billion.
“The volume of debt is so high that the economy is in a constant state of crisis.”
Former finance minister and economist Dr Hafeez Pasha says domestic laws such as the Fiscal Responsibility and Debt Limitation Act 2005 oblige the government not to borrow more than 60 per cent of GDP. And the annual budget deficit should not exceed three to four percent. But the opposite has happened.
According to Dr. Pasha, the budget deficit was 6.6 percent in 2017-18, while it was 9 percent in 2018-19, 8.1 percent in 2019-20 and in 2021 it is likely to be close to 8 percent.
Dr. Hafeez Pasha said that when there is such a huge deficit budget, it is obvious that it will be met with loans. And in that case, the debt will continue to grow. As a result, when the PTI government came, it was close to 70% and now it has crossed 87% of GDP.
“Pakistan's entire defense spending and civilian government spending are being met through loans.”
“This situation has profound effects,” he said. After the financial years 2018 and 19, a disturbing thing happened that after all the revenues of the federal government were given to the provinces, the interest on the loans taken from the remaining net revenue could not be paid.
This means that Pakistan's entire defense spending and civilian government spending are being met through loans. What could be more disturbing? This shows that our economy is still going through a crisis.
“After the 18th amendment, the provinces have to borrow to increase remittances.”
Another economist, Samiullah Tariq, believes that the debt crisis has escalated because the budget deficit has risen steadily and rapidly over the past eight to 10 years.
One of the reasons for this, he said, is that remittances to the provinces have increased dramatically since the 18th Amendment. As a result, the federal government began borrowing to cover its expenses (civil administration, defense, pension payments, interest payments on loans and development projects).
The amount of debit servicing (interest payments) for repaying this loan was also quite high and thus this volume kept increasing. According to him, the main problem for the government at the moment is the payment of old loans and interest on them.
According to Samiullah Tariq, the effect of such a large volume of debt is in the form of inflation and the depreciation of the currency.
According to Samiullah Tariq, the situation could worsen if government revenue does not increase significantly, the primary surplus (ie, this year's expenditure is met from this year's revenue) and the pace of expenditure is not kept slow. Similarly, an increase in exports is inevitable. For which it is necessary to increase the national productive growth of the country.
“Misuse of debt harms the economy even more.”
Many economists also believe that borrowing is not as bad as misusing it can hurt the economy. Samiullah Tariq agrees, saying that at first it seems that the purpose for which the loan is being taken will eventually be spent on improving the economy, but later it proves to be wrong. In his view, however, the solution lies in increasing revenue and exports.
Only a quarter of the Rs 3,000 billion loan is earmarked for development works
Dr. Hafeez Pasha says that if a loan of Rs. 3,500 billion is taken in a year to cover the budget deficit and then only a quarter of it, i.e. Rs. 900 billion, is spent on development works, while the rest is for administrative purposes. If the cost is low, then one can estimate how low the return on this loan will be in the years to come and how troubling the problems will be with its increasing volume.
There are some economies in the world that have borrowed 100 percent or more of their gross national product, but according to experts, such economies do not thrive because they have high savings, very low interest rates and The capital market is very deep which is why they do not face such problems in funding.
What does the government say?
The government says that in the first nine months of the current financial year, 80 per cent of the loans were obtained from local sources, Pakistan Investment Bonds and government monopoly Sukuk. In the first nine months of the financial year, Rs 2104 billion was paid in interest only.
The government has repaid a loan of Rs 569 billion from the central bank this year, while the government has repaid a loan of Rs 1100 billion from the central bank in two years. The government also said that appropriate steps are being taken to improve the management of debt, maintain the primary surplus, control inflation, achieve massive economic growth and reduce the budget deficit.
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