EDITORIAL: Domestic borrowing rose to 40.955 trillion rupees by end November 2023 as per data uploaded by the State Bank of Pakistan on its website - and whatever comparison one may be tempted to cite to make this amount look remotely palatable the following comparisons merit the attention of the stakeholders on an emergent basis: (i) the comparable figure for July-November 2022 was 32.985 trillion rupees or a rise of 24 percent this year against the same period of last year in spite of the fact that in 2022 Ishaq Dar’s violations of the agreement with the International Monetary Fund (IMF) under the then ongoing Extended Fund Facility programme led to a cessation of all external budgeted inflows while in the current year subsequent to the staff-level agreement (SLA) on the first review of the Stand-By Arrangement foreign inflows from bilaterals/multilaterals are on track though the 6.12 billion dollars budgeted under foreign commercial bank borrowing and issuance of debt equity (sukuk/Eurobonds) remains suspended as no rating agency has upgraded the country’s rating after the SLA; (ii) domestic debt rose from 31.085 trillion rupees in June 2022 to 38.809 trillion rupees in June 2023 - a rise of 25 percent and the responsibility for this highly irresponsible policy rests with former Finance Minister Ishaq Dar who not only raised the current expenditure by 21 percent from what was budgeted in spite of cessation of all external assistance at the time but also raised domestic debt servicing cost to the country by a whopping 39.4 percent from what was budgeted; (iii) June 2023 domestic debt was a high of 38.8 trillion rupees which implies a rise of 5.5 percent in five months; and 39.697 trillion rupees in September 2023 which implies that the caretakers are solely responsible for raising domestic debt by another 3 percent in three months, a policy decision with obvious repercussions on the inability of the government to check the Sensitive Price Index which rose by 42.86 percent year on year for the week ending 4 January 2024, Consumer Price Index rose by 29.7 percent in December (against 29.23 percent in November), which is baffling as the rupee has strengthened against the dollar.
However, core inflation declined marginally from 18.6 percent in November to 18.2 percent in December – a decline that many believe may have been engineered to ensure that there is no pressure from the Fund to raise the discount rate further.
Business Recorder has consistently been pointing out to successive economic team leaders that the rise in domestic mark-up as a component of the current expenditure, on the rise for decades, has reached a dangerous level. This year it is budgeted at 43 percent – which without doubt would be an underestimate by the end of the year as the caretaker economic team leaders, like their predecessors, continue to rely on domestic borrowing to meet an ever-rising current expenditure. It is relevant that with Dar in the driving seat last year revised estimates of domestic mark-up as a percentage of total current expenditure was an ever more disturbing 45.4 percent.
Pakistani administrations, elected, selected, caretakers all have tended to blame the Fund conditions as the root cause of inflation. There is considerable evidence to prove that this is certainly a major contributor as pending administrative decisions aimed at achieving full cost recovery are now prior conditions for a loan or a tranche release; yet what is well known is the fact that the Fund urges structural reforms that in the long run have the capacity to reduce inefficiencies/corruption and their associated costs, which in turn would reduce the pressure to raise tariffs; however, government after government, including the caretakers, has resisted their implementation to this day as the political cost is considered to be too high.
The luxury to defer such decisions is no longer available, given the current state of the economy. We can only hope that structural reforms are implemented on an emergent basis and while the caretakers are formulating policies including with respect to the Federal Board of Revenue, yet with elections less than a month away it may be prudent these decisions were deferred till an elected government is in place with its ability to get parliamentary approval.
One body that is likely to continue to function and which in the absence of an elected government is taking rather appropriate policy decisions is the Special Investment Facilitation Council (SIFC), staffed by senior and expert members from the civilian and military establishment, however as this council is chaired by a sitting prime minister it would be politic to perhaps consider a policy matrix for all sectors but wait for an elected prime minister to lend his support.
Copyright Business Recorder, 2024
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