Political exigencies and national interests
Pakistan’s external debt alone is likely to swell to $70 billion by year end. The debt pile has worrisome implications. If the pace of borrowing remained unchecked the size of the debt would become large enough for Pakistan to service its debt obligations. Rising debt is also a threat to macroeconomic stability and hence to growth, employment generation and poverty alleviation.
The federal government took $1.8 billion in fresh foreign loans over the past three months including $900 million from commercial banks in an effort to keep foreign currency reserves at historic highs. There is a perception that the government has borrowed extensively to ensure sufficient resources before contesting the next election in 2018. Among others who have expressed concern over Pakistan’s debt is IMF chief Christine Lagarde who during her recent visit to Pakistan pointed out that at current debt level, the interest bill was larger than even Pakistan’s entire development budget.
The PML-N government’s increasing reliance on commercial banks is intriguing. These loans are acquired without competitive bidding which raises more questions like what parameters are used in the choice of the banks. The government borrowed close to $1 billion from Noor Bank of Dubai, Dubai Bank and the UBL Dubai – all three operating from Dubai. What is worrisome is that these non-conventional borrowings have become a norm instead of an exception. Since June 2013, the government has borrowed $2.8 billion from foreign commercial banks. Expensive foreign loans are not a sustainable way to increase the reserves.
There is a perception that political exigencies have led to the government’s reliance on loans. Despite pressures from the IMF the government is reluctant to bring all taxable incomes to the tax net. The business community – particularly the retailers – constitute a major section of tax evaders. As they are the PML-N’s constituency, it is unwilling to annoy them. As Lagarde put It, Pakistan only collects little more than half of what is estimated as a feasible amount in taxes. Apparently political exigencies are being given preference over national interests.
