Pakistan’s debt obligations have crossed all sustainable levels as according to the State Bank of Pakistan the country’s debt and liabilities have soared to Rs15.2 trillion, equal to 68% of the total size of economy.
The latest debt figures come at a time when the International Monetary Fund (IMF) has advised the federal government to slash the debt, terming it “too high to be sustained”.
In September 2012, Pakistan’s total debt and liabilities stood at Rs15.2 trillion, for the first time ever, or 68.4% of gross domestic product (GDP), according to the SBP’s figures released last week. Compared to September 2011, the growth in debt and liabilities was alarmingly high at 17.7%.
The persistent increase in the debt burden is mainly the result of an uncontrollable federal budget deficit followed by rupee depreciation, which is adding billions of rupees to the debt even without borrowing a penny, says a finance ministry official.
Excluding liabilities, total debt stood at Rs14.5 trillion or 65.3% of GDP. According to the Fiscal Responsibility and Debt Limitation Act of 2005, total debt should not exceed 60% of GDP.
However, the IMF believes even this threshold is “too high”, sustained only by developed countries, which enjoy greater access to world financial markets and can borrow easily. It suggests that countries like Pakistan must take their debt much below 60% of GDP to overcome hurdles standing in the way of venturing into world capital markets.
For the last almost three years, the government has been struggling to float $500 million worth of exchangeable Euro Bonds backed by shares of blue-chip company, the Oil and Gas Development Company. Deteriorating economic conditions and eurozone debt crisis have so far left all such attempts unsuccessful.
Redefining the debt threshold is likely to be a condition in any new programme that Pakistan negotiates with the IMF in an attempt to avert a balance of payments crisis.
According to the SBP figures, domestic debt has surged to Rs8.2 trillion, 53.6% of total debt and roughly 37% of GDP. External debt has been put at Rs6.1 trillion.
As all sectors of the economy do not pay taxes due to exemptions granted on political grounds, experts attach much more importance to the debt-to-revenue ratio instead of measuring it in relation to the total size of economy.
As compared to acceptable levels of debt at three and a half times of revenue, the ratio is almost five times, underscoring the vulnerability of the country at a time when it has to return big loans to international creditors.
While the central bank puts total debt and liabilities at Rs15.2 trillion, the federal government has its own figure, which estimates the debt at slightly over Rs14 trillion.
The government does not add the debt owed by public sector enterprises and non-government bodies, arguing extension of sovereign guarantees does not mean that the government is responsible to return this amount.
The finance ministry takes the stand that private debt backed by sovereign guarantees is not covered by government revenue and should not be added to the public debt. However, the SBP’s debt definition meets international standards and is also supported by the IMF.
Published in The Express Tribune, January 22nd, 2013.
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