Costly borrowing
THE finance ministry blaming the hikes in State Bank policy interest rates for the rapid growth in public debt is a case of the pot calling the kettle black.
A ministry official told a Senate panel the other day that a 1pc increase in borrowing costs adds a whopping Rs600bn to annual debt-servicing expenses.
He maintained that the debt stock had surged by over Rs7tr since January 2022 due to the increase in the policy rate from 9.75pc to 22pc. That has, indeed, been the case as soaring debt-servicing costs keep forcing the government to borrow more.
As a new World Bank report notes: “Higher policy rates are increasing government borrowing costs, driving higher financing needs. These financing needs are … being met through increased borrowing from the domestic banking system.”
But the official modestly omitted to mention the contribution of the government’s profligate fiscal policies to the quicker growth of its debt stock over the last year and a half, ie, failure to contain its large wasteful expenditures and boost tax revenues by broadening the tax base.
He also didn’t mention how the spike in government borrowing from domestic banks to finance an average fiscal deficit of over 7pc year after year has crowded out the private sector and fuelled price inflation. The higher interest rate is a major contributor to our debt woes. But it isn’t the original sin.
In this case, extravagant fiscal policies are to blame. SBP has no option but to raise borrowing costs to control the aggregate demand, which is expanding mainly because of unrestrained government spending, and tame price inflation.
The government is stuck in a vicious cycle. Its debt problem is likely to be complicated with the passage of time because of its increasing reliance on domestic banks for financing its fiscal deficit amid shrinking external official budgetary support from multilateral and bilateral lenders.
No matter how miscalculated the SBP decision to hold the interest rate in its last monetary policy committee meeting was in the face of elevated inflation, its reluctance is understandable.
The government’s growing need to borrow heavily from the local banks has severely constrained SBP’s ability to contain inflation through policy rate increases. As of June, banks had allocated 74pc of their total loans to the public sector.
In contrast, credit to the private sector is down to 26.2pc from 30.3pc a year ago. Reduction in the primary budget deficit is the only sustainable solution for the government to cut its bank borrowings, alleviating the need for new inflationary liquidity injections from the central bank.
To achieve that, the government would have to shrink its budget deficit to 2-3pc by increasing tax revenues to 25-20pc of GDP and cutting its wasteful expenditures.
Published in Dawn, October 6th, 2023
Migrant crisis
WAR, persecution and poverty have driven millions of people from their homes, with many making perilous journeys in search of greener pastures. Yet with the global economy not in a healthy phase, and far-right groups everywhere pinning the blame on migrants, states are struggling to deal with the crisis. The issue of irregular migration was on top of the agenda as European leaders met in Spain on Thursday. According to UN figures, around 186,000 people arrived in Europe during the first nine months of the current year, with over 2,500 perishing while trying to make the treacherous journey across the Mediterranean. This includes hundreds of Pakistanis who drowned in the Greek boat disaster in June. British Prime Minister Rishi Sunak has called for “Europe-wide solutions” to address the crisis. Mr Sunak’s stance is almost progressive compared to the scaremongering of his Home Secretary Suella Braverman on the issue of migrants. Ms Braverman, herself the child of immigrants, told a Conservative Party moot that a “hurricane” of migrants, “uncontrolled and unmanageable”, confronted rich states. Such characterisations seem to echo the language used by far-right white nationalist groups. But Europe is not alone in confronting the migrant tide; the US has seen hundreds of thousands of people from Latin America cross its southern border every month, while Pakistan has also taken questionable steps to send Afghans back to their country.
Whether it is the US, Europe, or Pakistan, all those seeking refuge and fleeing violence need to be dealt with compassionately and humanely. Migration is essentially the result of a highly unequal world, where the have-nots of the Global South seek to pursue their dreams in the glittering cities of the Global North. According to the International Organisation for Migration, most migrants coming to Europe this year are from war zones (Syria, Afghanistan) or states undergoing financial turmoil (Egypt, Tunisia, Bangladesh, Pakistan). For those fleeing conflict, many of these wars have been sponsored by the West. If the US and Europe can spend trillions on waging war, surely they can shell out far smaller sums to help rehabilitate victims of conflict on their soil or in safe states. As for those fleeing fragile economies, including ours, the truth is that more equal societies need to be built so that people don’t have to risk their lives in search of a future overseas.
Published in Dawn, October 6th, 2023
Waiting for visas
BABAR Azam admitted to feeling at home in India but when Pakistan open their World Cup campaign against the Netherlands on Friday, they won’t be seeing Pakistani fans at Hyderabad’s Rajiv Gandhi Stadium. Pakistani fans with tickets as well as journalists continue to wait for the issuance of visas, despite the Pakistan Cricket Board pointing out to the International Cricket Council that the delay contravenes the tournament’s hosting rights agreement. According to reports, the Indian cricket board has asked its government to speed up the process, but for the opening game, it is unlikely that fans from Pakistan will make it. With or without their fans, though, Pakistan will have to take the field against the Dutch — and perform — in a game that will set the tone for the rest of the campaign. The build-up hasn’t been encouraging. The Pakistan side lost both their warm-ups in India against New Zealand and Australia and although those games were largely for practice and acclimatisation, Pakistan’s bowlers have come up short. The otherwise fiery Haris Rauf gave away runs at over 10 per over across both matches. But the biggest conundrum facing Babar seems to be the fact that the spinners can’t stem the flow of runs during the middle overs — an issue that also hampered Pakistan’s campaign at last month’s Asia Cup.
Pakistan have little time to address that issue with games at the World Cup coming thick and fast. Sri Lanka that edged out Pakistan to reach the Asia Cup final await two days after the Dutch clash. The most anticipated fixture, however, comes on Oct 14 when they meet arch-rivals India, fresh from a victorious Asia Cup campaign where they thrashed Babar’s men in record-setting fashion. For that game at the world’s largest cricket stadium in Ahmedabad, it is hoped that fans from Pakistan are able to cross the border. Pakistan need to start well with Australia to follow after India, before a match against Afghanistan at the halfway point of the league stage. South Africa, New Zealand and defending champions England are three of their last four opponents — all tough propositions at a time when the semi-final race will intensify. Babar is hopeful his bowlers will get back in the groove and Pakistan fans with tickets would like nothing more than seeing the team triumph in India — provided they get there.
Published in Dawn, October 6th, 2023