Domestic, international borrowings: PML-N govt deviating from election manifesto, warn economists

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  • Dar eyeing $11 billion from international lenders
  • SBP to raise Rs 1.7trillion budgetary support for funds-starved government
  • Improved savings, tax base and law and order is a must
  • Ailing economy to loss up to Rs400bn to politically-motivated strikes

 

Economists see the newly-elected Pakistan Muslim League-Nawaz (PML-N) government as following the borrowing-centric policies of the previous PPP-led government with it to also have embarked on a national and international campaign to add billions of dollars to the heavily-indebted country’s existing debt burden.

Finance Minister Ishaq Dar is reportedly beating the victory drums for, almost, persuading the international lenders, prominently the International Monetary Fund (IMF), for extending the dollar-hungry Pakistan a bailout package of at least $11 billion in the next couple of months.

On the other hand, the central bank, by issuing its quarterly auction calendar on Monday, raised eyebrows in the quarters concerned about the intentions of the heavily-mandated new government that, seemingly, is set to follow the footsteps of its predecessors who ran the country’s affairs for five years through borrowing trillions from the domestic lenders, specially the banks.

During the first quarter of FY14, July-September, the State Bank would be raising Rs 1.75 trillion for the cash-strapped federal government through auctioning T-bills worth Rs 1.6 trillion and Pakistan Investment Bonds (PIBs) of Rs 175 billion to the primary dealers, mostly the scheduled banks.

This mammoth amount would certainly be borrowed from the risk-averse banks at the expense of an already expanded monetary growth that, official data show, accumulated to 12.66 percent or Rs 967.18 billion by June 21.

The analysts believe that this naturally has an inflationary impact as the period under review saw over Rs 312 billion of currency in circulation compared to Rs 218 billion of last year’s corresponding period.

“This government’s policies are the continuation of old policies and the PML-N is totally deviating from its election manifesto,” Dr Shahid Hasan Siddiqui told Pakistan Today.

The economist said the government’s total emphasis was on taxing the common man and taking domestic as well as foreign loans. “There is no emphasis on enhancing the national savings,” Dr Siddiqui said. “There also is no emphasis on increasing the tax-to-GDP-ratio by taxing incomes, especially in sectors like agriculture, stock exchange and property,”

Pakistan, the country of around 200 million people, is among the countries where tax-to-GDP-ratio stands the lowest at 9 percent. The federal finance has vowed, in his budget speech, to gradually boost this number up to 15 percent.

Afsar Bin Shahid, another senior analyst, opines that even the most-desired financial bailout packages from bilateral and multilateral agencies such as the IMF, World Bank, the Asian Development Bank, the United States, Japan and the United Kingdom, would not work for Pakistan which is faced with the uphill task of improving the ever-deteriorating law and order situation domestically.

“Given the prevailing global recessionary climate raising (the reported) $11 billion will not be an easy job for Pakistan,” said the analyst. He said the targeted lenders, sans exception, would love to see first Pakistan demonstrate how it would generate the repayment capacity.

He was critical of the new government for not giving even a mention to the recovery of billions of rupees embezzled by the corrupt politicians and bureaucracy in past. “Only the masses are being burdened with taxes,” said Shahid.

For Islamabad to bring the troubled economy back on track, the analyst proposed, the improvement of law and order was a must. “The poor security situation and the resultant closure of businesses might adversely impact the lenders’ consideration of Pakistan as a reliable borrower,” said Shahid, a seasoned banker.

While Sindh Chief Minister Qaim Ali in the last Sindh Assembly session had put it at Rs 15 billion, a financial analyst said frequenting strikes in Karachi, the country’s undisputed financial hub, cost the already ailing economy at least Rs 7 billion a day.

“The economy will incur a huge annual loss up to Rs 400 billion if these politically-motivated strikes kept the current pace,” the analyst warned and questioned that given such an anti-business situation how the government would be able to generate resources to repay the borrowed billions of dollars.

Improving the law and order, he suggested, was a must for restoring the investors’ confidence that, the analyst believed, was the most sustainable remedy to the resource-constrained Pakistan’s financial woes.

15 COMMENTS

  1. Anyone who expected that PMLN will change anything was living in fool's paradise. The PM and his cronies are rich businessmen. They will never tax their own. Now people who voted for them will suffer for the next 5 years. enjoy.

  2. wait and watch,ultimately same result as that of PPP,this leaders in the name of Democracy loot the country,distribute borrowed money amongst themselves,fulfilling foreign countries agenda and then leaving the 5 yrs rule with huge debts ,inflation and costlier commodities ,rise in poverty and finally bankrupt nation ,with following govt ready to beg and further burden the country.They dont tax the upper class becoz they all have connections and are relatives of them.This is DEMOCRAZY ,We were much better in military rule ,good law and order,less corruption,prosperity and improved economy.

  3. Anyone can run a government by borrowing billions of dollars,what these morons need to be doing is generating from within and like these guys suggested,first they need to take care of the law and order situation,companies will come and invest,take care of the energy crisis and that will keep the businesses open,factories and mills running,which will generate jobs,people will earn money and spend money,people will pay more in taxes since they earn more,which in turn helps the economy,even a high school student knows all that.The country is already over their head with dept,now this government wants to add another $11 billion on top of that and guess who is burdened,the poor Pakistani worker to pay higher taxes,patrol,food,cost of living has tripled while the daily wage has dropped 10 folds.All I can say is,good luck Pakistani people,you get what you pay(vote) for.This Dar guy needs to get his a.. whooped.

      • That may be so but there needs to be accountability.Look around the world,look at the Arabs,they are throwing a fit and getting the worlds attention.What do we do in Pakistan???? we just burn tires and other countries flags,all the while the politicians continue to pull your pants down and rob you of everything including your dignity.Talking about it and calling names won't do a thing brother.Either you guys demand results or quit whining

  4. A close family friend of mine working abroad for 30 years last month got retired from government service. Since he was on a senior position he will get in a month or two a large amount as retirement benefits. It would be a colossal amount in Pak Rupees and according to our local today’s standards in 7 digits US dollars.

  5. He recently sought my advice and last week I sent him brochure and application forms for the national savings with the suggestion he invest the same divided in his own name, his wife and three children. Saturday morning he got my registered mail when a few hours later he learnt through Pakistani channels that the National Savings have once again reduced profit rates. There is today no big gap between bank long term fixed deposit rate of return and those of national savings. By the evening though he appeared to half minded, he still sought my further advice. Due to this development I advised him to wait for few days. The very next morning on Sunday came the article from senior journalist Nazir Naji breaking news that the Government had imposed “silently” undeclared a “Chor tax” of 0.5% on all bank and national saving

  6. and national saving account holders who had a balance of Rs. 10 lacs or above. According to Nazir Naji’s rough calculation if one through fixed deposit is earning Rs. 64,000 yearly he would thus, in addition to already imposed withholding tax and Zakat (early in reality to Banazir supporters and now to PML-N) would pay Rs. 54,000 as tax. In other word in one stroke, in my case, now I will earn 10½ months profit rather than 12 months. My friend now finally today Tuesday has decided to keep all this amount in a Fixed Deposit in Saudi Rials in Saudi Arabia from where he retired. He is of the opinion that rate of profit though is less yet it is beyond any fear of ever dwindling down rates and new and new levies or policies. He told me word patriotism no more exists in his dictionary.

  7. I had been too junior to him. I retired earlier from him. Today the warning bells have started in the mind of this old aged lower middle class retired old man to think and rethink for the sake of my too nearing age when I would be unable even to move and do what elite of this country is doing viz send back my retirement dues which though are in 6 figures in Pakistani Rupee from where these came and keep there. There is no doubt our policy makers from their heart don’t honestly wish permanent money to come but only which temporarily comes like mobile service providers who invest a dollar today and start taking out dollars six from the next month.

  8. Can there be simple calculation dont borrow and dont invest in the name of development. wonder Afganistan does owe a single penny to any country of the world. The Govt borrows in the name of Development and the people in the Govt misappropriate that funds, the poor gets poorer. By the way If anybody gets 12% return on his deposits and the inflation rate is also in double digits, what would be his real income?

  9. LOL

    Hoor choopo

    Jinah apay khana mang kay
    una mangtay maray tung kay

    Is awam ki pori patni chahiay
    Noray ko vote or G main danda LOL

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