Up to four years after the creation of Pakistan, we were debt-free. Then came the World Bank that convinced our then rulers to borrow from the bank, promising it would jump-start the economy. Whether the economy jumpstarted or not, it is now clear that the unfortunate foundation of reckless borrowing was laid. That also gave our rulers the easiest way of creating money to be spent on unproductive projects that did not create any real revenue generation capacity, and was mainly spent on budget deficits.
Our handling of economic matters reminds us of the sad facts that John Perkins narrated in his famous book, Confessions of an Economic Hit Man, how in some countries various projects were created that truly were not needed, and then lent money to the said country. World Bank was our first ‘saviour’, whose first two financed projects were in 1952 — a railway project for $27.20 million, and an agricultural machinery project for $3.30 million. To date, there are dozens of projects under planning or implementation that are funded by international finance agencies and banks. One can write a complete book on the nature of these projects and their impact on the economy.
Currently, Pakistan owes $69.558 billion to external lenders, and 13.655 trillion rupees to domestic lenders, as on March 31, 2016. I shall only be discussing the debts that have been obtained by the current government, while discussing in detail the history and effect of borrowing since 1947 in my upcoming book.
While discussing the loans, I have taken all the data from the State Bank of Pakistan (SBP) in their periodical statement, “Government Domestic Debt and Liabilities,” which consist of Permanent Debt, Floating Debt, Unfunded Debt, Foreign Currency Loans (Special US Dollar Bonds) and Government Domestic Liabilities. The SBP shows Pakistan’s External Debts and Liabilities consisting of Public External Debt, Public Sector Enterprises, Bank Borrowing/Non-resident Deposits, Private Sector and Debt Liabilities to Direct Investors. Foreign Exchange reserves include gold, and foreign exchange reserves with the SBP and with commercial banks.
Forestalling the objection some readers may have, I would like to reiterate here that since the SBP considers all items of external and domestic debts, as stated above, to be Pakistan’s debts, I am taking the said figures to make an educated analysis for my readers. As can be seen above, the domestic debts increased from June 30, 2013 to March 31, 2016 by 3,890.8 billion rupees ($37.14 billion), and external debts by $8.659 billion, which converted at weighted average exchange rate of March 31, 2016 at 104.7555 rupees comes to 907.08 billion rupees. Total domestic and external debts, as on March 31, 2016 stands at 20.941 trillion rupees or $200 billion, which shows that every Pakistani — if government’s population guesstimate of 195.40 million given in Pakistan Economic Survey 2015-16 is authentic — is indebted at 107,170 rupees.
What the above data also shows is that while total debts have increased by 4,797.9 billion rupees ($45.801 billion), the foreign exchange reserves increased by $10.295 billion. One can easily assume that some of the reserves were created out of borrowings, perhaps by buying dollars by the SBP.
The million dollar question is where the net borrowings of 4,797.9 billion rupees were utilised, whether this amount was utilised to create some assets that would enhance the revenue generation capacity of the country, or whether this huge amount was used to balance the budget.
In January 2016, the auditor general of Pakistan in a special audit stated that the circular debt of power sector has gone up to 690 billion rupees. This presumably includes the circular debt of 335 billion rupees that has been parked at the Power Holding Company Ltd. Apparently, this money is lost, and has to be paid by government of Pakistan, as it was done on June 29, 2013, by paying 480 billion rupees the then circular debt of IPPs. Supposing this entire circular debt or half of it is paid in June 2016, what shall be the true and correct position of the national accounts of Pakistan?
In part two of this article, I would highlight where this net borrowing of 4,797.9 billion rupees was utilised, and what be the status of our national accounts will be if this circular debt is to be accounted for.
(To be concluded)
The writer is President of Political Economy Watch, and can be reached at [email protected]