Pakistan’s Debt Trap – OpEd
Pakistan is currently in the clinches of severe debt trap that was around 72 percent of the GDP in December 2022. At present, total debt and liabilities in January 2023 were Rs 60 trillion. A gigantic increase has been seen in it during the last two decades where gross public debt has increased by 1500 percent in past 22 years.
The history of debt starts in the 1950s when Pakistan approached to World bank and the IMF. From 1950 to 2014 world bank provided 310 loans of 40 billion USD in which 39 percent were pocket while 61 percent were program loans. While the IMF program has dispensed the SDR 4273,000 million since 1958 in its total 22 programs. The Islamic development bank has delivered 37 billion USD since 1966. Whereas, the Asian development bank has transferred 37 billion USD yet. China is the biggest loans provider whose share is 30 percent of total debt.
Taking loans are not as harm as it has been portrayed but getting loans for the sake of refunding loans is disastrous. This has been a real issue in Pakistan where currently 85 percent of loans are non_project loans that have hampered economic growth. The government has to pay interests on these non_project loans that ultimately put economic development on stake.
The question arises what to do to shackle the chains of slavery in the form of debt trap?
1. End subsidies and focus on targeted subsidies for poor. For instance, subsidies of Rs 699 billion were provided in fiscal year 2022-23. It included Rs 490 billion for power sector only. In the past 6 months Pakistan,s Railway income was Rs 28 billion while its expenditure was Rs 53 billion. The government of Pakistan provided a chunk of Rs 22 billion subsidy to it. Pakistan is thirsty for 1 billion dollars bailout package for the IMF while at the same time, the government has been pouring huge amount on sibsidies. How to end subsidies. It demands robust privatization of those sectors such as the PIA, Pakistan Railways, Pakistan Steel Mills, and other sectors those are in loss,
good governance and holistic approach and a cold fist to elite culture.
2. This elite capture has made hostaged country,s tax system. They are present in every institution with special reference to parliament as a pressure group. They donot allow any policy formulation against their interests. According to a report of the UNDP that elite privileges in Pakistan cost 17.4 billion USD to the economy. The UNDR observes that the richest 20% in Pakistan holds 50% of national income. While the poorest 20% has only 7%. It further calculates that 37% of public expenditure benefits elites. 1 percent feudal families holds 22 percent of arable land. While the UNDP says 6 percent of stats economic privileges are for elites. These privileges have dented tax system that is only 9 percent to the GDP currently. While as per the world bank analysis Pakistan must enhance its tax GDO to 17 percent if Pakistan wants a robust economic recovery for which Taxing elite is a must. While at the same time, in 2010_11 IMF said that Pakistan economic has potential to collect 22.3 percent of tax to the GDP. Meanwhile, for instance, despite 17.4 billion USD privileges, the governments have time and again announced tax privileges for housing and construction sector which is the most important factor of country,s tax system. The previous government of Imran Khan announced that whosoever wants to invests in this sector, they will not be asked about their source of money.
3. Increasing Exports and diminishing trade deficit. Currently, trade deficit of the country is 49 billion USD, ironically a country that has fertile land and is known as agricultural country imports food items of 8 billion USD annually. There is a dire beed to solve the issues of exports such as: no fix rate of energy, laws related to the FDI, ending protected market for selling goods by our companies, and starting competition among them, etc. for overcoming trade deficit. In the presence of such a gigantic trade deficit, ending debt trap will remain a dream.
4. Population bomb. We are adding 5.5 million in our population every year with a growth of 2.4%. Estimatedly, it will amplify to 300 million by 2030 and 403 million by 2050 from current population of 208 million. This is alarming. Overpopulation destroys every economic planning, demand and supply, increases food and water demands, and it brings inflationary pressure. Regrettably, the government has no policy for controlling it. Untill and unless we control population bomb, we will continue to be trapped in the vicious cycle of debt.
5. Bad governance and Corruption. How can one expect economic recovery in the absence of bad governance and corruption? According to the transparency international Pakistan rank is 140/180 in corruption index. Sadly, the institution of ending corruption the NAB as become a toll of political victimization rather then focusing on eradicating embezzlement. Moreover, many development projects are not completed on annual basis and go on for years which ultimately cost more to the exchhequr. Despite taking many years and huge sum of money the quality of the projects remained unsatisfactory. As the country observed that during the ongoing flood many newly constructed dams particularly in the province of Balochistan were swept away by flood waters.
Notwithstanding, malgovernance is damaging the country like Termite. Ex-finanace minister Miftah Ismail writes that from 2 gasfields in Sui Unaccounted for Gas (UFG) is a huge issue that is responsible for loss of 2 million dollar monthly. He says that it is unknown whether this is due to theft or leakage. He further asserts that Discos have failed to collect 17 percent of bills. It means 34 percent of electricity is lost or stolen. This is the worst kind of mismanagement. On one side, the country is at the verge of shortage of Dollar while on the flip side, it is bening smuggled to Afghanistan. It is testifies another governance debacle. Bloomberg writes that 5 million dollar are smuggled every day to Afghanistan.
Pakistan is in the clinches of vicious debt trap that has made its sovereignty at stake. It has been 7 decades that loans over loans have been taking for which interests over interests are being paid. It is still nonstop. We must make our home in order first and fomulate holistic policies with respect to end subsidies, tax reforms, reducing trade deficit, diminishing expenditures, enhancing resources, ending corruption, cementing governance system, focusing on agriculture sector, etc. The fault, dear Brutus, is not in our stars, But in ourselves, that we are underlings.