WEB DESK: The latest data on external debt of the country is highly disturbing. According to the figures just released by the State Bank, external debt and liabilities of Pakistan have ballooned up to a historic level of about $73 billion, with the largest ever increase of almost $8 billion in 2015-16. As is well known, total stock of debt and liabilities comprise aggregate public debt, the Paris Club debt, Euro Sukuk Global Bonds, IMF loans, PSEs and private sector guaranteed and non-guaranteed debt, debt liabilities to direct investors, bank borrowings and other foreign exchange liabilities.
Public debt has a major share in external debt and liabilities. Out of $73 billion, public debt amounted to $61.36 billion, showing an increase of $6.7 billion during the year ended June, 2016. A detailed analysis revealed that IMF debt surged by 47 percent to $6.043 billion at the end of June, 2016 compared to $4.1 billion a year earlier, depicting an increase of $1.94 billion. External debt of PSEs went up by $264 million to $2.75 billion at the close of FY16, up from $2.48 billion at the end of June, 2015. With an increase of $3.4 million, bank borrowings also reached $1.638 billion while private debt rose to $3.29 billion from $2.99 billion in June, 2015. Debt liabilities to direct investors also reached $2.853 billion, up by $151 million during the year.
The latest trend in external debt and liabilities of the country, as reported by its central bank, should be a major cause of concern for the economic managers and serve to ring alarm bells in the relevant policymaking circles of the government.
The situation seems to be under control so far because of inflows of funds from the IMF and other multilateral and bilateral sources, rescheduling of the Paris Club debt, floatation of foreign currency bonds and substantial amount of home remittances but these sources are neither reliable nor sustainable in the long run. In fact, the Paris Club debt rescheduled earlier and IMF loan would become payable soon, home remittances have tended to decline and C/A deficit has widened lately.
A fall in foreign inflows, deterioration in current account deficit together with mounting foreign debt and liabilities and its servicing have of course the potential to reduce foreign exchange reserves drastically and put the country in serious trouble. Seen closely, the present government has been able to talk confidently about the improvement in the external sector and accumulation of foreign exchange reserves due to certain favourable developments and its pungent ability to borrow from outside sources without caring much about the country’s capacity to service its debt easily and without excessive pain in future. It may be reiterated that foreign exchange reserves of the country have risen by about $12 billion during the first three years of the PML(N) government as against the cumulative increase of $12 billion in external debt during this period.
Even a layman knows that it is not a good policy to borrow from a bank at high cost and deposit the same amount in another bank at a lower rate. Another worry is that the present government, instead of relying on its own sources, is planning to borrow more and more and pushing the country towards a debt trap with the result that composition of external debt would move more towards relatively high cost borrowings and ratio of external debt to exports of goods and non-factor services would continue to rise.
In our view, there is an urgent need for the government to attain a sustainable position in the external sector of the economy and reduce the stock of debt and liabilities over time through a variety of measures. In this connection, it is of vital importance to boost exports, restrict imports and at least sustain the present level of home remittances. Another necessary step is not to enhance the level of foreign exchange reserves of the country by resorting to high cost borrowings from foreign sources.
We are sure that the government is aware of the consequences of its debt policies and their after-effects. Our future generations would be better served if our policymakers get out of the addiction of large doses of external borrowings.
Source: Business Recorder