ALARMING RISE IN THE DEBT BURDEN
Feb 21 - 27, 2011
In a written reply to a question asked by a member, Finance Minister informed the National Assembly last week that the total amount of external debt had increased to $53,654 million as on December 31, 2010. Replying to supplementary questions, the minister had to admit that expected revenues during the current financial year would only be enough to meet the debt servicing and defense expenditures. From questions and answers in the House, it appeared that the year 2011 would be one of the toughest economic years in Pakistan's history.
At a high-level briefing in September last year, Dr. Hafeez Sheikh had warned the government that there would not be enough money to pay the salaries to its employees after two months if immediate steps were not taken to ensure additional revenues. Despite best pleading of the minister, RGST could not be enforced because of the tough opposition in the Parliament and the public. The rich and influential landlords dominating the Parliament and the provincial assemblies again managed to keep their fabulous income out of tax net. As a result, the government had to resort to internal borrowings mainly from the State Bank to meet its expenses. According to the reports, the State Bank has been providing billions of rupees every month by printing new currency notes thereby adding to inflation indirectly. According to a report, borrowing by the federal government from the State Bank of Pakistan touched unprecedented heights in the current fiscal year as it rose 20 times in almost five months. The figures stood at Rs281 billion compared to about Rs14 billion in the same period of the previous financial year.
According to the Annual Report (2009-2010 ) of the State Bank, Pakistan's total public debt, both internal and external, increased from Rs4986 billion at the end of June 2007 to Rs9106 billion at the end of June 2010, almost double in three years.
Assuming the total population of Pakistan of 166 million, every citizen of this country was burdened with government debt of Rs54,855 of which 44 per cent is to be paid in foreign exchange. On debt servicing, the situation is even bleaker. Debt servicing has become the largest single drain on the government budget. It constituted about half of the total current expenditures and consumed about three- fourths of gross tax revenues. The amount to be spent on debt servicing now has reached to about three times larger than defense expenditures. It is obviously an alarming situation, which should have caused a panic in the concerned circles.
Public and external debts have grown during the last three years at a pace never witnessed in country's history, and such it has reached an unsustainable level. Public debt (both the rupee and dollar component of the debt) rose by an average of over 28 per cent per annum between 2007 and 2010.
Many factors have contributed to the recent surge in the debt burden. These include the persistence of large fiscal and current account deficits, sharp depreciation of exchange rate (about 30 per cent), and the massive losses of over Rs300 billion incurred by the government owned enterprises, mostly because of rampant corruption in these organizations under official patronage .
It is horrifying to note that the total stock of public debt that stood at Rs4,802 billion in June 2007 surged to Rs9,473 billion by end September 2010. In other words, the country added Rs4,671 billion in three years. It had taken 60 years for the public debt to reach Rs4802 billion, but the present PPP led government has added almost the same amount in its three years' rule. This government of the rich by the rich and for the rich seems to be least worried about it except the finance minister who has been warning the government from time to time or a few parliamentarians belonging to opposition.
The scene of looming financial disaster painted by the finance minister, in his latest briefing last week to the parliamentary leaders of various political parties, appeared even gloomier than the images presented in the past. Dr. Hafeez Shaikh warned that the budget deficit could climb to 8 per cent of the GDP and inflation, which has already taken a huge toll on the budget of virtually everyone, could soar further. He asked the political leaders to come up with their suggestions to help rescue the country and prevent it from what could be a collapse. It was followed by the move from the President for a roundtable conference of all political parties to consider the economic situation to evolve a consensus program to heal the ailing economy of the country. It is a welcome development and a step in the right direction under the prevailing circumstances. Let us all prey for its success.