Same old story in the absence of fiscal discipline
Since the end of the latest IMF program in September last year the government has simply been unable to cope with the realities of self-sufficiency. $4.6 billion have been borrowed in fresh foreign loans in the last seven months.
Our economic managers and ministers in the current government base their optimism on foreign publications articles that paint a very rosy picture. The reality is much different.
Our foreign exchange reserves have been falling and are currently at $17 billion as they are being used to make debt repayments of which there are aplenty. Around $6.5 billion has to be paid over the next fifteen months and realistically there are two sources to service that debt – already dwindling reserves or more borrowing. Both options have dangerous consequences.
Reserves are not getting replenished anytime soon as FDI is dismal and exports – even with the massive textile support package – are unlikely to increase anytime soon and remittances too are falling. On the flip side, our import bill will rise as international oil prices are increasing which will add pressure on reserves.
That leaves borrowing from multilateral donors or by floating more international bonds. Debt to pay debt is never a good idea – as exemplified by our current predicament. Our last international bond issue was widely agreed to be too expensive.
Even CPEC, the much touted perceived bedrock of the country’s economic future too is misleading. For one there is no clarity on the debt to equity ratio of the massive $51.5 billion investment, too many tax breaks are being given to Chinese firms and the influx of Chinese labour, equipment and technology does little for Pakistan’s economic recovery.
History is bound to repeat itself as another debt trap looms. Every government comes in and borrows heavily deeming it necessary to clean up the previous governments mess. Come re-election time spending increases and as a consequence borrowing as well to finance high visibility projects. There will be no end to this loop in the absence of proper, self-imposed fiscal discipline.
