Public debt

Pakistan has been dependent on the IMF to sustain its economy for long. There are conditions that Pakistan needs to meet, and the IMF is in no mode to be flexible. More than the IMF conditions, there are other factors that need attention. Pakistan’s public debt is an issue that the government must tackle, rather than solely rely on the IMF, or any other country. Pakistan’s gross public debt crossed the Rs40 trillion mark this year, one third of which is external debt. When the rupee depreciates, we end up paying more to foreign lenders in terms of local currency. That is why rather than seeking more foreign loans from the IMF -- and from other sources -- perhaps it is better to do something serious about controlling our currency depreciation. When our interest on loans becomes greater than our development expenditure, there is something seriously wrong with our economy.

Pakistan is perched now at the lower end of credit rating by international agencies making it a part of a highly speculative group of developing countries. Pakistan’s ability to pay back its debts on time is not on solid grounds. If we find ourselves in the substantial risk category, we cannot just look at temporary reliefs which are going to run out sooner than later. The world looks at Pakistan as a country that can default on its debts and our economic managers -- and other major decision makers -- appear to be oblivious of the impending danger while trying to appease extremist lobbies in the country. This policy has already made it difficult for us to get out of the FATF grey list. There are steps that need immediate attention. First, we must improve our sovereign rating to reflect our governance and institutional effectiveness. That we cannot do unless a better economic structure presents improved growth prospects. Similarly, external finances with fiscal and monetary flexibility may do the trick. Pakistan’s per capita income has declined since 2018 and so has government income in real terms keeping in view exchange rate changes.

Increasing public debt is likely to increase poverty and the citizens of Pakistan are likely to suffer even more. Pakistan is one of the 50 countries in the world that are facing an imminent debt crisis. Not unrelated to this is the situation of human rights in the country. International bodies are increasingly concerned about the fundamental rights of the people such as freedom of assembly and expression. With our deteriorating record on the human rights front, if we continue in the FATF grey list, the prospects for our economy will be even gloomier. If the government keeps borrowing from the IMF -- and other sources -- repayment and servicing of external debt will become an uphill task. Each new borrowing creates more borrowing, with an external account crisis waiting to happen. A large amount of government debt results in a negative impact on economic growth potential which is why the government must now focus more on reducing the debt burden rather than increasing it.