LAHORE
The Pakistan Industrial and Traders Associations Front (PIAF) has asked the government to take serious measures to get rid of its dependence on foreign loans, as the current expenses of the government reached Rs1.84 trillion out of which Rs954 billion was used for domestic and foreign debt servicing.
PIAF Chairman Faheem ur Rehman Saigol asked the Ministry of Finance and the State Bank of Pakistan to make strenuous efforts to save the rupee from further depreciation, as all that good news of bailout forex inflows from international financial institutions (IFIs) as well as from Saudi Arabia and China can do is the help the rupee make some momentary gains.
The PIAF Chairman said that debt servicing appears to be the biggest problem for the government, compelling the country to borrow even more money to pay off its existing debts. Low tax revenues against large government expenditures on unfeasible projects create the perfect recipe for economic mismanagement-with a tax revenue gap of 10 percent, which is not surprising.
He said that during the last two years the country has witnessed the worst unemployment, high inflation and negative growth, raising the country’s external debt to a whopping Rs62.5 trillion. At the start of the year, the International Monetary Fund had projected a minor decline in the country’s debt. The government spending was also expected to decrease this year, but that did not happen. The country was still reeling from the madness surrounding Russia’s invasion of Ukraine when it was hit by the worst torrential floods in its history, triggering an economic crisis of dystopian proportions.
Prime Minister Shehbaz Sharif has already taken to the international stage to request debt relief from major creditors as it wrestles with the aftermath of its most recent climate disaster, but to no avail. With the appreciation of the US dollar against many currencies both in the developed world and emerging markets, the price of imported goods is higher than ever; tightening economic conditions for countries in the Global South, such as Pakistan.
The taxpayer money that we do collect is immediately diverted to foreign debt-servicing, leaving no funds for public goods. In the meantime, we continue to rely on external borrowing as opposed to investing in domestic institutions that could provide us with a safety valve during times like these. Pakistan’s biggest creditor, China who has invested more than $60 billion in Gwadar, is growing exasperated with low returns on its investment, as evidenced by recent disagreements between the two countries over interest rates, leading Beijing to postpone all CPEC meetings with Islamabad.
Faheem Siagol said that Pakistan’s medium-term debt repayment capacity has been weakening due to government’s absolute dependence on loans.
Due to the high external debts and liabilities stocks, its servicing has surged to a massive $3.07 billion in the first quarter of this fiscal year, showing an increase of 25.36 percent annually, he added.
He warned that the government will have to borrow on a large scale during the current year to meet the huge gap of current account deficit. If the quarterly debt servicing maintains this trend and magnitude, overall FY23 figure could be around $14 billion, limiting the SBP reserves to $7.3 billion level.
With a view to contain the current account deficit and improve foreign exchange reserves the government has now introduced import curbs which gave it some relief on the external front, he said and added that the same strategy has adversely impacted economic growth as decline in imports have hurt business activity in the country.
