DIFFICULT DECISIONS & REFORMS NEEDED TO IMPROVE THE ECONOMIC SITUATION

KANWAL SALEEM
(feedback@pgeconomist.com)

Mar 26 - Apr 1, 20
12

Macroeconomic indicators in Pakistan are showing negative signs due to stagnant growth and poor investment. The government is facing some key economic threats such as rising debt burden, surge in oil prices, freefall in the value of currency and high inflation. However, it seems that despite gravity of the situation, economic issues are not on the government's priority agenda, which is subsequently affecting the people of Pakistan.

Poor macroeconomic situation has now implied additional burdens on the poor segment of the population with a reduced quality of life. No pragmatic measures have been taken to address the issues of energy crises, fiscal deficit, and poor tax collection.

As per official statistics made available to PAGE, the public debt, both internal and external, and debt servicing have increased by 81.98 per cent and 51.3 per cent respectively during the last four years of the present PPP-led democratic government with public debt increasing from Rs6 trillion in 2008-09 to Rs10 trillion in 2011-12 and debt servicing from Rs526 billion to Rs796 billion.

These statistics reveal that domestic debt as well as external debt liabilities doubled during the last four years. Domestic debt increased from Rs3,226 billion in 2008 to Rs6,223 billion in 2011-12 and external debt jumped up from Rs2,778 billion to Rs4,773 billion.

Financial experts told this scribe that rising debt was a matter of serious concern and the situation might become unsustainable as bulk of resources would be consumed on debt servicing and nothing would be left for development and pro-poor initiatives.

According to them, the government has failed to meet the budgetary target of interest payment during the last four years and the target set each year has been revised upward owing to higher than projected borrowing by the government for financing its budget deficit.

It may be noted that the government allocated Rs790.9 billion in the budget for 2011-12 for making payment on interest on domestic and foreign debt.

Business-cum political leader, Muhammad Pervaiz Malik MNA told PAGE that the present government is borrowing to finance burgeoning current expenditures and contain budget deficit that would have serious future repercussions on account of escalating debt servicing cost and contribution to inflation. He said that financial discipline is essential for moving towards macroeconomic stability, which has been lacking during the last four years and consequently the public debt has piled up in absolute and relative terms.

According to him, the present government had relied on printing of notes by the State Bank of Pakistan (SBP) to cater to its borrowing requirements that had been a major factor in inflation in the country. Increase in inflation would compel the SBP to further increase the borrowing cost, which would disable the private sector from playing any role in growth that in turn would lead to unemployment and more of our industries relocating abroad, he added.

Experts believe that political instability results into economic instability and also breeds corruption, mismanagement and bad governance which ultimately affects poor people.

In the past four years, current government seemed hanged in air almost all of the time, and struggled only to remain in power come what may, ignoring reforms or service delivery. They added that current government failed to implement reforms and called back several reforms on manipulation of smaller allies in government such as on issue of value added tax.

In the last four years, government appointed four SBP governors, four finance ministers, four secretaries, five CBR chairmen. In a situation where there is no stability in economic team how can we look for consistency and stability of economic policies, they questioned.

Difficult decisions and reforms are needed to improve the economic situation. Currently, financial accounts are entering into danger zone and if gap in current account deficit continues to rise, it will dry up currency exchange reserves with serious consequences to exchange rates.

Pakistan, in last 4 years, had accumulated debt equal to last 60 years of debt and balance of payments is another problem we are going to face in coming days. It appears the present government has no roadmap for repayment of debt such as $1.1 billion due in 2012 and $2.7 billion due in 2013 and rest in 2014.

The widespread increase in level of debt has not only caused manifold economic problems but would also overload our future generations with repayment burdens for many years to come.

The current fiscal year carried the legacy of high fiscal deficit and current account deficit; debt service payments constituted about half of the total current expenditures and consumed about three fourth of gross tax revenues.

The debt burden has crippled the economy as the country's foreign debt is composed of loans from major sources i.e., loans from multilateral agencies such as the World Bank, International Monetary Fund, Asian Development Bank and Paris Club.

Debt servicing has become the single largest item of expenditures in the government budget reflecting the combined impact of surge in the volume of domestic and foreign debt, rise in domestic interest rates and depreciation of the rupee.

According to the SBP, cumulative debt and liabilities of the government escalated from 68.7 per cent of the GDP in 2009-10 to 69.5 per cent of the GDP during 2010-11. Debt and liabilities have amplified from Rs8.746 trillion in 2009-10 to Rs10.196 trillion in 2010-11. The total debt surged from Rs8.306 trillion in 2009-10 to Rs9.685 trillion in 2010-11 and other liabilities also increased from Rs439.9 billion in 2009-10 to Rs510.5 billion in 2010-11. Furthermore, the total public debt, which was recorded at Rs7.835 trillion by the end of 2009-10, touched Rs9.106 trillion in 2010-11. The political leadership borrowed Rs374 billion from the central bank, while loans of Rs366 billion were attained for commodity operations and Rs368 billion for public sector enterprises (PSEs).