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Editorial: On the Brink of Default

Pakistan’s ballooning debt can only be addressed by weaning off the habit of securing ever-harsher loans

by Editorial

File photo. Rizwan Tabassum—AFP

Examining Pakistan’s economic figures is essential to recognizing whether the country is simply indebted like many developing nations or is on the edge of default. Some economists even think the country has already defaulted due to its inconsistent economic and debt policies over the last 22 years. In that time, its gross public debt has increased over 1,500 percent and, since 2000, every successive government has almost doubled it. In 2000, the country’s gross public debt was Rs. 3.1 trillion. When Gen. (retd.) Pervez Musharraf stepped down in 2008, it had jumped to Rs. 6.1 trillion—a 100 percent increase. The PPP’s 2008-2013 tenure ended with a public debt of Rs. 14.3 trillion—a 130 percent increase in five years.

The PMLN government of 2013-2018 added another Rs. 10.7 trillion in debt, hiking it to Rs. 25 trillion, an increase of 76 percent. Imran Khan’s PTI government, which came to power with promises of lowering the debt burden to Rs. 20 trillion actually increased it by 77 percent to Rs. 44.3 trillion at the end of 43 months, less than four years. Today, Pakistan’s total debt and liabilities are over Rs. 60 trillion.

Public debt is a by-product of many things: expenditures higher than revenues; a foreign-savings financed economic growth model; depreciation of the local currency against foreign currencies (mainly U.S. dollars); among other factors. Further adding to Pakistan’s woes is a low tax-to-GDP ratio (9.2 percent), with the country’s wealthy elite availing subsidies from a poor government. Tax avoidance is especially rife within the nation’s informal economy, which generates huge amounts of wealth—particularly in the real-estate sector—creating demand for imports that are funded by high-interest foreign loans.

Over the past two decades, grants from multilateral and bilateral donors have been gradually eliminated, in favor of loans aimed at ending balance-of-payments crises that so many developing nations suffer from. This has only added to Pakistan’s debt. There is little good news on the horizon, especially as the country expends much efforts in securing loan rollovers annually just to keep its head above the water. Pakistan now has no choice but to wean itself off taking loans to reverse its climbing debt; the alternate is a persistent economic crunch that no state can afford.

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