Huzaima Bukhari and Dr Ikram-ul-Haq

Self-praise is no recommendation, yet our rulers have no qualms in resorting to it. Self-projection by distorting facts and concealing figures is even worse but our politicians blatantly indulge in it. Our present economic managers are taking pride in imposing regressive taxes, showing inflated figures of revenues by blocking bona fide refunds only to meet the target of fiscal deficit agreed with the International Monetary Fund (IMF). They are least interested in structural reforms and concrete measure to achieve sustainable a 7% to 8% economic growth, increase exports and investments, create jobs for all, improve infrastructure, overcome power shortage and restructure loss-making public enterprises before privatisation. These measures are essential to overcome burgeoning fiscal deficit, curtail monstrous size of the ever-increasing debt and ensure a rapid economic growth.

Our worthy Finance Minister in an op-ed [Public debt management, Business Recorder, March 19, 2016], after reminding the nation of his ‘wonderful achievements’ (sic) on economic fronts, accused what he termed “many detractors of the Government” for “ceaselessly creating doubts about the debt situation of the country.” He, however, admitted that during the period from July 2013 to December 2015, the total public debt “has grown to Rs 18,467.3 billion out of which the external public debt is $53.36 billion (Rs 5,589.2 billion) while domestic public debt is Rs 12,878.1 billion. Thus, there is a net increase of Rs 4,148.9 billion in total public debt, inclusive of $5.23 billion of external debt.” In 2013 when Dar became Finance Minister, public debt amounted to Rs 14,318.4 billion [external public debt of $48.13 billion (Rs 4,796.5 billion) and domestic public debt of Rs 9,521.9 billion]. Dar in his op-ed wanted to “put the record straight.” Let us also remind him of the following for correction of record:

Report for First Quarter of Fiscal Year 2015 (Q-1 FY15) released by State Bank of Pakistan (SBP) reveals that the government made external repayments of Rs. 13.5 billion. In 2014, the external debt/liabilities touched the mark of $65.6 billion. On domestic front, non-bank borrowings increased sharply from Rs 116.1 billion in Q1-FY14, to Rs 210.4 billion in Q1-FY15.

According to SBP, public debt “reached Rs 16.6 trillion as of end-September 2014, showing an increase of Rs 246.7 billion during Q1-FY15, which was almost a quarter of the rise recorded in Q1-FY14.” Following the net addition of Rs 189.4 billion, the outstanding stock of domestic debt reached Rs 11.1 trillion by end-September 2014. Fiscal deficit increased slightly to 1.2 percent of GDP, from 1.1 percent in the same period of last year. The report says that “this increase came primarily from a rise in interest payments, reflecting a higher volume of PIBs in the government’s resource mobilization during the last three quarters.” It further revealed that provinces, requiring to show a combined surplus of Rs. 289 billion during FY15, actually posted Q1-FY15 only Rs. 57.7 billion, i.e., less than half the surplus in Q1-FY14.

The country paid $874 million in debt servicing to the IMF during the first half of FY2015.

The real challenge on this front will come in the year of maturity of 10-year Eurobonds issued in FY2006 ($500 million bullet payment is due on March 31, 2016) and FY 2007 ($750 million) is due FY2017.

Repayment of rescheduled Paris Club debt under Official Development Assistance will also start from FY2017, while servicing the Extended Fund Facility programme with the IMF will begin in FY2018—the five-year Eurobond issued in April 2014 of $1 billion would mature in FY 2019.

It is, thus, obvious that Dar stated half truths in his op-ed and did not mention that debt obligations starting from FY2016 would create extraordinary pressure on the country’s foreign exchange reserves. Dar in his op-ed has failed to acknowledge that external debt servicing remains the main concern in the wake of unprecedented rise in the volume of foreign loans since 2008—the major chunk comes from the International Monetary Fund (IMF). Managing high fiscal deficit (root cause of many economic ills) coupled with a massive debt burden is the toughest challenge faced by Dar but he is not ready to admit it what to speak of tackling it. The obvious and undisputed solution is a substantial increase in resources and a drastic reduction in spending, but it is easier said than done. For the last ten years, Pakistan’s fiscal policy has remained under immense pressure owing to perpetual failure of Federal Board of Revenue (FBR) to meet the assigned targets, continued security related outlays, a rise in wasteful expenditure and greater than targeted subsidies.

In 1997, the slogan of Pakistan Muslim League (Nawaz) [PML-N] was ‘Qarz Utaro, Mulk Sanwaro’ [Retire Debt, Adorn Country], which was reversed in 2013 with Qarz Burhao, Mulk Bigarho’ [Increase Debt, Destroy Country]. Let us ask the worthy Finance Minister to inform the public about the fate of ‘Qarz Utaro, Mulk Sanwaro’ which turned out to be an utter failure [Qarz burhao, Mulk bigarho, Business Recorder, August 31, 2013]. Within one week of assuming his second term [February 17, 1997 to October 12, 1999] as Prime Minister, this scheme was personally announced by Premier Nawaz Sharif on February 23, 1997 along with declaring Friday instead of Sunday as weekly holiday. The PML-N in its third term is using the same old tactics—misleading the people about its failures on the economic front.

Ishaq Dar is on record [Press conference of August 26, 2013] to have claimed that the “government would seek $12 billion in loans from international financial institutions to retire its previous debts and to try its luck with international and domestic bond markets to finance its mega projects.” Where are the “mega projects” and debt retirement? Selling bonds at exorbitant rates and borrowing more and more money has led to further indebtedness—costly and burdensome? PML-N as usual is unwilling to tax the rich and mighty [‘No will to tax the rich’, Business Recorder, June 14, 2013] to bridge the enormous tax gap. Many a time it has been mentioned in these columns that if we plug all loopholes in tax collection, it will not be difficult at all to raise taxes of Rs 8 trillion—the actual tax potential of Pakistan.

The only way to come out of the prevalent mess is to accelerate growth, generate employment, and enhance tax revenues, stop financing luxuries of elites and incurring losses in public sector enterprises (PSEs). But the present government just like the PPP-coalition government is not at all serious about it. During its election campaign, PML-N made tall claims that on assuming power it would get rid of the “cancer of debts.” However, since assumption of power, Nawaz government is knocking at the doors of international lenders with even greater vigour than PPP.(The writers, authors of many books and partners in HUZAIMA IKRAM & IJAZ, are Adjunct Faculty Members at Lahore University of Management Sciences)