Government on a borrowing binge like never before

Tall claims aside, national economy presents a bleak picture

Despite fabulous claims of improvement by Ishaq Dar, the national economy continues to present a bleak picture. Power sector circular debt, excluding what is owed to oil companies, reached Rs180 billion by February. Such is the dismal state of governance that the federal and provincial governments failed to realize staggering amounts in dues from state sector enterprises and government departments. Starting from defence forces to autonomous bodies, provincial government departments, down to municipal corporations, public sector owes hundreds of millions of rupees to WAPDA. As of Jan-Feb this year, the outstanding power dues stood at Rs492 billion, the private sector owing Rs366bn while the public sector the rest. In its last report, the SBP expressed concern over the performance of the Federal Board of Revenue and said the annual revenue target could not be met this year. The Bank cautioned that inflation would remain in the range of 8.5 to 9.5pc “unless the government announces an increase in household gas tariff, which was due in January”. The government borrowing from commercial banks has also seen an increase in the second quarter. It mobilised Rs188.1bn from commercial banks against a net retirement of Rs179.1bn in the first quarter.

Despite a commitment to the IMF that it will hand over the joint control of foreign exchange reserves to SBP and withdraw its finance secretary from its board to give autonomy to the central bank, even a single step in the direction has yet to be taken. The government meanwhile continues to manipulate the par value of rupee for political considerations.

Borrowings meanwhile continue to mount. The terms on which Pakistan’s Eurobonds were offered for sale is a reflection on the state of national economy under the PML-N government. Pakistan had offered a whopping return of 7.25 per cent on its $1 billion of five-year bonds and 8.25pc on $1 billion of 10-year securities. This is much higher than the returns promised on US bonds. It is even higher than the returns Pakistan had offered in 2007, the last time it had tapped the world markets. Sri Lanka sold a $500m bond earlier this week, offering only 5.12pc return on its notes – much below the highly lucrative offer made by Pakistan. The high premium offered underlines that investors still consider Pakistan a high risk country for investment. The reason is simple. Despite government’s offer of talks to the militants, there is no let up in the incidents of terrorism while power outages and gas shortage continue to act as brakes to slow down the wheels of industry.

The sale of bonds on these terms amounts to overburdening the successive governments with debt. Even junk-rated African economies have successfully cashed in on the international hunger for higher yields. In the circumstances it is Machiavellian indeed to claim that the quick sale of Eurobonds is a sign of the international investors’ improving confidence in Pakistan’s economic policies.