Where does 30pc of budget go?

The total budget volume for 2014 has been announced as Rs3.936 trillion of which Rs1.325 trillion will be consumed for debt servicing.

This means that 33percent of the budget will go to paying interest on debt and the remaining 67 percent will be used for economic reforms.

A developing country has to rely on borrowings in order to achieve its overarching goals of economic stability and national development but proper debt management is the prerequisite for the sustainable economic growth of a country.

There must be equilibrium in exports and imports so as to minimise the need for borrowing and overcoming fiscal deficit. Unfortunately, the ever increasing foreign debt is one of the major problems besetting Pakistan’s drawn out economy.

Pakistan is the third largest debt recipient country in the region. Its external debts have been reported to reach 33 percent of the Gross Domestic Product (GDP) as compared to India’s 15 percent and China’s 7 percent.

There are several factors, including domestic problems and international economic recession, behind this debt dynamics.

The increasing debt-to-GDP ratio is mainly due to declining tax-to-GDP ratio as out of 190 million only 1.8 million people pay tax.

Rampant corruption is the key factor in this regard.

According to the Transparency International annual report, Pakistan is at 34th position among the most corrupt countries of the world.

Apart from this, the energy crisis, including the erratic power supply, crippling inflation, growing security spending and low productive capacity have led to fiscal deficit which, in turn, increases foreign debt.

Pakistan is not in a position to formulate an independent fiscal policy due to these external debts and its struggling economy is at the mercy of leading lenders like the IMF and World Bank.

In a nutshell, Pakistan’s economy is at a critical juncture and there is a dire need for taking a pragmatic approach regarding fiscal management and independent decision-making.

The pressure of foreign debt can be released by introducing reforms in our taxation structure and by attracting foreign investment as it is the only way for economic development.

The writer is a student of MS in Management Sciences at COMSATS Institute of Information Technology