Daily Times

Ascension to the citadel of power may not have been as difficult for the incumbent coalition government of PM Imran Khan as tackling the draconian economic and foreign relations challenges will be. I am sure this realization must have already started boggling the minds of PM Khan, his economic team, and his coalition partners. They must have already comprehended, and wisely so, that the economic challenges confronting Pakistan are formidable and phenomenal. These challenges will have to be dealt with deftly, and with a sense of utmost urgency and responsibility.

To better appreciate the gravity of the country’s economic predicaments we would need to enumerate and discuss these problems one by one:

External borrowing is an essential phenomenon which all underdeveloped and developing nations of the world are compelled to resort to for attaining its developmental goals. To be more specific, inadequate indigenous financial resources make external borrowing compulsive for underdeveloped and developing countries. As reported, Pakistan’s total external debt and liabilities (EDL) has peaked to a shockingly high level of $91.761 billion till end March 2018 against $ 60.9 billion in June 2013. This, according to available official data, means that the EDL increased by $30 billion in the last five years. The overall public debt including domestic, external and liabilities in rupee term have touched Rs28, 297 billion till March 31, 2018 indicating that each individual living in the country owed Rs.136,700 debt burden keeping in view total population of 207 million in accordance with results of latest census. The IMF projected that Pakistan’s external debt and liabilities could peak to $144 billion in the next five years from $93 billion in fiscal 2018.

There has been an unprecedented increase in Pakistan’s domestic debt. According to the State Bank of Pakistan (SBP) the provisional total of domestic debt till December 2017 stood at 15.4 trillion rupees. In view of the foregoing, it would be rather logical to assume that the government borrowing during January and February 2018 must have resulted in increasing the domestic debt to more than 16 trillion rupees, which perhaps was more than the total annual budget outlay for the year. This assumption could prove to be all the more credible given the severe resource constraints of the previous government fuelled by the reluctance of multilaterals and bilaterals to extend programme loans (budget support) due to their lack of confidence in the government.

Pakistan’s current account deficit widened to $18 billion or 5.7 percent of the GDP during the last fiscal year of 2017-18, putting the Rupee at risk of a further drop in value and fanning fears about the sustainability of economic growth

Shockingly, yet again, Pakistan, it is reported, is paying over Rs1,620 billion as interest against the estimates of borrowing loans from external and internal sources. Documents reveal that Pakistan will pay an estimated amount of Rs1,391 billion as interest to domestic banks and Rs229 billion to foreign institutions in 2018-19. In addition to this, Pakistan has to repay an amount of over Rs. 21,905 billion to domestic and foreign lenders in the upcoming years. Moreover it is reported that on an average Pakistan is paying over $ 4.5 billion annually on external debt servicing. An alarming and worrisome situation indeed! Had frugality been the cornerstone of the policy of successive governments and had the humongous external and domestic loans they had taken, over the past seven decades, been spent conscientiously and judiciously on meeting Pakistan’s developmental needs, the country wouldn’t have had to bear this phenomenal burden of external and domestic debt.

Pakistan’s current account deficit widened to $18 billion or 5.7 percent of the gross domestic product (GDP) during the last fiscal year of 2017-18, putting the Rupee at risk of a further big fall and fanning fears about the sustainability of the economic growth. The SBP has stated that the current account deficit amounted to $12.6 billion or 4.1 percent of GDP in Fiscal year, 2017. According to eminent economist Dr Ashfaque Hassan Khan, Pakistan may have to go to the International Monetary Fund (IMF) to obtain a fresh bailout package in late August or in early September. Dr. Khan said his calculation for the current account deficit for the current fiscal year is $21.2 billion. “The external financing requirement is expected to be more than $31 billion,” he forecasted.

The above data published in some of the leading national English dailies of the country and on the website of the State Bank of Pakistan (SBP), from time to time, are perturbing enough to send shockwaves down the spines of not only the country’s economic managers and the government in saddles, but also every educated and concerned citizen of Pakistan. In the next part of this article I will explore the implications of these financial crises on Pakistan’s economy and what steps it should take to overcome them.

The writer is a freelance columnist based in Islamabad

Published in Daily Times, August 31^st 2018.