- Crawling out of the perpetual debt trap
With $16 billion in foreign loans taken in 2018-19, the PTI government has added another record to its ongoing streak of debilitating firsts in the history of the country’s economy. Apart from the $2.4 billion that was taken months before the general elections by the caretaker setup; $13.6 billion was borrowed in the past 11 months by the current government making it the highest ever external borrowing undertaken by a single government within a year. $5.5 billion has been disbursed by Saudi Arabia, Qatar and the UAE, providing crucial support for immediate relief as the country was on the brink of default, unable to meet foreign debt obligations. Reportedly, this amount will be moved to the SBP balancesheet rather than being parked under the foreign debt, thereby reducing the total debt amount. However, the reduction will be somewhat offset as $2 billion out of the $6.7 billion of Chinese debt marked under SAFE deposit, will be part of the federal public debt due to pressure from the IMF.
A gross requirement for external financing stands at $25.6 billion for the current financial year as projected by the IMF. With $14.5 billion public sector debt repayments due this year, a large chunk of the external financing will be used to retire debt. A sharp depreciation in the rupee has not helped matters either while sources of foreign exchange such as exports and FDI are declining. While recent measure such as a standard 17 percent GST on export-oriented sectors has resulted in the closing down of many small textile mills, and even the larger ones are feeling the pinch, resulting in lower volumes. An unfavorable investment climate is coupled with reduced ease of doing business due to an over-zealous tax collection and accountability drive. The country is still entangled in a vicious debt trap that it is unlikely to crawl out of anytime soon. The PTI had vowed not to take any loans when it came to power; that promise went out the window immediately after coming to power and realizing what it had inherited. One year gone, it is simply not enough now to continue blaming previous governments for its economic woes; it is high time this government takes responsibility for the current mess and starts working towards solving it.
