Breaking ‘Debt Prison’

Dr. Ikramul Haq

“The central government’s debt increased at a double-digit pace to Rs. 32.1 trillion by the end of November [2019], an addition of a whopping Rs. 5.7 trillion in just one year, as the Pakistan Tehreek-e-Insaf (PTI) government failed to adequately enhance revenues to meet expenditures”—Shahbaz Rana, Public debt rises to Rs. 32.1tr by Nov end, The Express Tribune, January 9, 2020

The alarming increase in debts under the PTI government highlighted above is reported in the most recent ‘statistical bulletin’ of the State Bank of Pakistan (SBP). Inadequate collection of revenues—tax and non-tax—and unprecedented rise in current expenditure has been discussed frequently in these columns. While revenue targets are missed perpetually, rise in expenditure remains unchecked. A report of December 30, 2019 [PTI govt okays Rs. 11 billion for military allowances] reveals that the government has “approved a supplementary budget of Rs11.7 billion to pay for the military’s allowances and allowed duty-free import of cotton to meet local requirements”.

Shockingly, the country’s external loans/liabilities reached Rs. 10.598 trillion on November 30, 2019 as per SBP data. On one hand, the government wants export-led growth and on the other Federal Board of Revenue [FBR] is allegedly not issuing bona fide refunds to exporters. In the face of huge shortage of cotton bails [around 5 million], Economic Coordination Committee [ECC] decided to “withdraw the 3% regulatory duty, 2% additional customs duty and 5% sales tax on imported cotton from January 15, 2020”.

What a tragedy that farmers are neither trained nor financed to produce quality cotton that we once used to export after meeting the local demand! Indeed we have failed to create exportable surplus in agricultural sector, increase productivity and quality, reduce costs and establish agro-based industries capable of meeting local demands and produce value-added exportable commodities.

FBR refutes blame for shortfall of Rs. 287 billion against target for the first half of the current fiscal year—claims it is due to $6 billion import contractions. So, FBR admitted its main collection is import-based! For falls in imports and not rise in exports, economic team is jubilant to have achieved “extraordinary” improvement in trade deficit, narrowed to $11.6 billion showing 30% decrease!

Success on one front [reduction in current account deficit] has resulted in failure on other the other [widening of fiscal deficit]—a vicious circle for an economy, suffering from stagflation!! According to figures released by Pakistan Bureau of Statistics on January 6, 2020, exports registered negative growth both on yearly and monthly bases—cumulative growth from July-December 2019 is down by 3.2%. Exports reverted to about $2 billion a month after briefly remaining slightly over this figure—a threshold we have not been able to cross since long. Thus, PTI Government will surely miss the annual export target for the second consecutive year.

If imports fall further for remaining six months of FY20, its negative impact for FBR will increase substantially—fiscal deficit may exceed Rs. 3.5 trillion. The consequences of IMF’s prescriptions are obvious: currency devaluation, austerity, high interest rate and rising cost of utilities etc—all destroying business growth, increasing unemployment besides more costly loans for State and substantial fall in GDP growth. The bottom line: the country is being pushed into deeper debt trap and after some time microeconomic instability will resurface.

Donors/lenders keep on focusing on levying more oppressive, anti-growth taxes that also make lives of poor more miserable, but keep mum over ever-expanding expenses, bulk of which is totally avoidable as it funds monstrous government machinery that is inefficient, corrupt [not even sparing money meant for the needy under Benazir Income Support Programme], change-resistant and hooked on unprecedented perquisites!

Premier Imran Khan’s economic team is not thinking out of the box to come out of debt prison. The Finance Ministry released the last report on debt management risk indicators in June 2018—reports for December 2018 and June 2019 are due. It means no report is issued for the past 18 months. It confirms their (non)seriousness with the biggest challenge faced by country—debt sustainability—this year debt servicing is expected to exceed Rs. 3 trillion against budget allocation of Rs. 2.89 trillion.

One hopes the star economic team has read the news item, ‘Greek Saga Ends With the Closing of IMF’s Office in Athens’, published on January 8, 2020 by Bloomberg and must be considering the ways and means discussed therein to reduce debt burden and saying good-bye to IMF earlier, making Pakistan self-reliant through a well-thought-for plan, structural reforms, import substitutions, export-led growth, reducing wasteful expenses, utilizing untapped resources, imparting technical know-how and providing training and finance to the young to boost SME sector etc. All these were discussed six years back in ‘Learn from Hungarians’ [Business Recorder, August 16, 2013]. Hopefully they will go through it and the recent paper, ‘Economy of Debt: Alternatives to Austerity and Neoliberalism in Pakistan’, written by Ammar Rashid, M. Nawfal Saleemi and Aasim Sajjad Akhtar—on which PIDE held seminar on January 9, 2019.  

Prime Minister, Imran Khan since taking oath of office keeps on pointing out rightly the most dreadful aspect of the five-year term (2013-18) of Pakistan Muslims League (Nawaz) [PMLN] leaving behind a monstrous public debt of Rs. 29.9 trillion. But now the PTI Government has broken their record—their logic is that we are compelled to borrow to pay off old liabilities! The same was the excuse of PMLN shifting blame on their predecessors. All said and done, the question is: Where is the debt retirement plan/strategy of PTI that it used to propagate with much fanfare before coming to power?  

During the decade of democracy [2008-2018], the Parliament as a whole never addressed the issue of gross violation of the Fiscal Responsibility and Public Debt Limitation Act, 2005. On May 14, 2018, Miftah Ismail while presenting the budget clearly mentioned  borrowing of Rs. 22 trillion in the coming fiscal year for retiring domestic/foreign debts and their debt servicing—details in ‘To servicing maturing debt, Pakistan to borrow Rs. 22 trillion in 2018-19’[The Express Tribune, May 15, 2018]. PTI thus wrongly take a plea that it was caught unawares! It was fully aware of huge liabilities to be discharged in future due to imprudent policies of economic wizard of PMLN, now a proclaimed offender, fugitive of law, avoiding proceedings before Accountability Court.

Now, forgetting the follies of past, the real challenge before the PTI Government is how to come out of debt-prison. The key to debt retirement is savings, investment, export-driven growth, drastic reduction of wasteful expenditure, utilisation of untapped resources and collection of taxes fairly. For achieving these goals no concrete plan, based on sound research is available with PTI’s economic team! No doubt, there is a strong desire to revive the economy, but how—no plan is unveiled till today. The mammoth debt burden, huge fiscal and current account deficits are symptoms that will keep on recurring unless the causes are removed, which among others discussed above are elitist structures, crony capitalism and inefficient state institutions.

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The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)