Borrowings and the PML-N government

The Pakistan Muslim League-Nawaz after regaining power in 2013 had made claims of saving the country of 200 million souls from the financial crisis and getting rid of international financial institutions.

The country witnessed three-year bailout package involving the International Monetary Fund (IMF) and Extended Fund Facility valuing 6.64 billion US dollars.

At the time of completion of EFF in August 2016, the then finance minister Ishaq Dar made huge claims of getting the IMF rid of more loans and meeting finances from Pakistani resources.

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To meet with growing expenditures side by side lower than expected revenues, the PML-N government kept relying on external loans from financial institutions and loans from its own banks.

The government also relied on international Sukuk/Euro bonds by floating in international markets apparently to generate income to support foreign exchange reserves, plug in budgetary and fiscal deficits, cover current account deficit and repay interests on loans.

Dar, who is currently facing high-level inquiries involving his income beyond known means and offshore companies, continued defending his regime that Pakistan’s economy has been put on the part of progress and international rating agencies are now rating Pakistan as one of the emerging economies.

With almost the completion of five-year term of PML-N regime and general elections in swing in current year, the latest confessions by the ministries concerned in the parliament committees and before the higher courts about the horrific picture of external debt appears to be shock waves for the entire nation.

A recent State Bank of Pakistan (SBP) report portrays dismal picture of historic levels of external debt and its liabilities which have almost touched the mark of $89 billion by the end of 2017, a 47 percent increase in the debt liabilities and payments in the last four years.

The report further highlights that the debt liabilities and payments are 74.7 of the GDP by December 31, 2017.

Out of total debt and liabilities valuing $242.66 billion by the end of second quarter 2017, the country carries internal debt and liabilities of around $150 bn.

Adding insult to injury, the findings of 10th annual report on the state of economy titled ‘China-Pakistan Economic Corridor Review and Analysis’ prepared by the Shahid Javed Burki Institute of Public Policy concludes:

“The debt liabilities of the China-Pakistan Economic Corridor (CPEC) are estimated to be around US$3.3 to US$4.5 billion per year by 2025.”

Where do we stand at this point of time as independent and wise state is a million dollar question. As the nation hopefully sees the new government in the third quarter of ongoing year more than 210 million souls will have growing weight of loans on their struggling shoulders.

I have yet to find an answer to a question that why Pakistanis are trapped under a vicious cycle of debts and borrowings and what are the factors restricting Pakistani regimes from coming out of the clutches of menace.

Why we are not tapping revenues from our own major revenue spinning wheels of the country, the Federal Board of Revenue, the provincial tax collection agencies, and district revenue collection bodies etc?

Have Pakistan’s political regimes and bureaucracy made up their permanent minds that there is no other option except dependence on internal and external borrowings to run the affairs of the state.

There is a strong perception in the minds of people that whatever loans the successive Pakistani regimes have secured for development and non-development expenditures have been mismanaged by the executive of the country.

Another of school of thought is of the view that weak foreign policy to get the external debts paid off on the grounds of war on terrorism and security challenges has also appeared to be a bottleneck for country managers.

The economic managers and Pakistan Foreign Office always lacked power advocacy at international forums to convince the global lenders to waive off loans like some countries in Africa and Latin America.

“Pakistan is passing through the phase of classical debt trap which means we take loans to pay back previous loans. The colonial mindsets and rampant corruption in government ranks do no want us to come out of the debt traps”, says Dr Qais Aslam, an economist and Professor at the University of Central Punjab.

He fears that up to $7 bn debt serving is going to haunt the next political government.

According to him, the charter of United Nations under the Moratorium on External Debts allows any sovereign state to seek loans for social sector development like education, health and poverty alleviation for up to 20 years and repay the amount after getting desired results.

Unfortunately, he says the military regimes, the Pakistani politicians and bureaucracy do not want to form viable policies and instead a good chunk of loans goes to the pockets.

Aslam is of the view of that Pakistan can come out of the debt trap only if the policy managers apply terms and conditions to the international financial institutions on equal footings.

“Pakistan will not pay back those loans which have been misappropriated and not used for constructive activities; it will acquire loans only for the development projects; and seek loans with up to 20 years’ repayment plan.”

The rising debt and incompetency on the part of government to control it is not only hampering the economic progress of the country, but also posing a big challenge for upcoming new government to tackle.

Whatever political party or a conglomeration of parties sit on the driving seat of the country’s affairs after general elections it must realize as how to get rid of colonial and traditional ways and means and come with a novel way to generate and enhance indigenous economic resources to get rid of debt traps.

Borrowings and the PML-N governmentBy Faisal Ali GhummanFaisal AliFaisal Ali Ghumman
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