This Thursday, the World Bank brought Pakistan’s worsening macroeconomic condition to light. This was done through a report that highlighted the federal government’s over reliance on short-term foreign loans and its inability to broaden the tax net.
The report warns that Pakistan has significantly increased its reliance on foreign loans, accumulating $5.8 billion in short term loans in two years. The Bank states that declining reserves and elevated debt ratio will limit the country’s ability to withstand external financial shocks.
As the report mentions, Pakistan’s public debt can fall from 68.1 percent to 66.4 percent with properly executed corrective measures. One of the corrective measures recommended by the World Bank is to use latest technology in efforts to prevent tax evasion.
In an effort to keep the economy ‘afloat’, the PML-N’s economic measures have ended up relying heavily on foreign loans.
According to statistics maintained by the Finance Ministry, half of the total loans taken from July 2013 to June 2017 — $17 billion — were used for repayment of previous debt. During this period, the federal government added $18 billion to Pakistan’s total external debt. This is a record amount of debt added by any government so far.
In 2015-16 fiscal year alone, the federal government borrowed an unprecedented Rs 2.1 trillion — that’s Rs 5.7 million borrowed every day.
These figures make it quite clear that the borrowing has been the only way the PML-N has managed the economy in its term so far. The government claims that the benefits of some of the projects it has started or plans to start from borrowed money will accrue in the long term. But this is not sound economic reasoning, for short- and medium-term consequences of such a growth model cannot be ignored, particularly when it comes to dealing with international financial shocks and protecting marginalised and vulnerable population groups.
This growth strategy needs to be revised. Serious problems with debt and economy need structural solutions like broadening the tax base and introduction of more progressive taxes on affluent segments of the population. Besides, Pakistan needs policies conducive to creation of jobs for its rising population.
Published in Daily Times, November 13th 2017.