Debt, taxes and energy

Unwilling to accept the reality

With the IMF extended fund facility ending last week, Pakistan’s foreign reserves are at a record figure of $ 23.58 billion. At the same time our liabilities have also reached a historic level at $ 73 billion, a 12% increase over last year. These reserves are the result of borrowed dollars from multiple international donors.

Historically we have borrowed close to $ 4 billion every year on average. Last year the government took a record $ 17.1 billion in foreign loans. Another Islamic Bond is now in the works with Islamabad-Lahore motorway as collateral to raise close to $ 1 billion. According to Ishaq Dar this is meant to pay off a loan from the Musharraf years.

Meanwhile the circular debt has ballooned to Rs 400 billion although the PML-N in 2013 had promised – after paying Rs 480 billion out of the Rs 510 billion debt at the time – that it would not exceed Rs100 billion. Resultantly this month unscheduled load shedding has increased.

On the revenue side things seem to be deteriorating quickly. While exports and remittances are expected to fall even further, the FBR has yet again missed its revenue collection targets with a shortfall of Rs81 billion in the first quarter of this fiscal year.

PML-N’s strategy seems to be to survive its five years by piling on debt to both fund high visibility infrastructure projects, CPEC being a case in point, and service existing debt. This strategy keeps the economy just above water while providing ample sloganeering material come election time.

The government hence feels everything is fine but the numbers suggest a much bleaker picture. The government has to face realities of revenue shortfalls due to insufficient tax collections and fall in exports due to unjustified tax increases. Our reliance on debt is because present and past leaders think short term. Yes we need to borrow to fund projects but it has to be economically viable as well whereby you can pay it back through indigenous revenue, not more debt.