Former Advisor to Prime Minister on Finance Dr Hafeez Pasha stated that Pakistan would require $15 billion during the current and next fiscal year to meet our foreign debt obligations.
Speaking at Aaj TV Programme 'Paisa Bolta Hai' with Anjum Ibrahim, Hafeez Pasha said that according to data uploaded on the International Monetary Fund (IMF) website Pakistan will have to pay $11 billion during 2016-17 and 2017-18. He said if Pakistan is required to repay $11 billion and maintain its foreign exchange reserves, the country needs to borrow more than $11 billion. This is unsustainable and if the interest payment is also included, Pakistan would be required to make repayment of $15 billion in the current and next fiscal year. This is becoming a very big issue, he added.
The former Advisor on Finance stated that ever since 2008 onward there has been a significant growth in the debt to GDP ratio and if it is calculated appropriately including what happened in the first quarter of the current fiscal year as well as to bring in some of the items which the government prefers to exclude, Pakistan debt to GDP ratio is close to 70 per cent.
He said that there are number of things about the debt which are worrisome one being that external debt is growing and a ratio of external debt to exports in next two to three years would approach 400 per cent. This would be close to Greek ratio, he said.
However he said that comparing Pakistan's borrowing with European countries is not entirely appropriate because European countries are part of the EU and receive massive bailouts, particularly from European Central Bank.
He said that even IMF has extended credit of $50 billion to Greece, a country which is one-tenth the size of Pakistan, while Islamabad received only $6.64 billion.
Pasha added that EU countries' access to the international capital market is much greater and their failure means failure of one the leading currencies of the world namely Euro and unfortunately Pakistan does not have that privilege.
Given the international environment and change in the US government, Pasha stated that Pakistan should not make favourable assumptions of inflow of capital.
Pasha said that there is growing reliance on short-term borrowing from commercial banks, including those from China, but pointed out that even short-term inflow in October and November was negative.
He said short-term borrowing is highly risky and at a high cost, besides there is also a lack of transparency. Parliament ought to be informed as to what are the terms of short-term borrowings, he said. He further stated that if Pakistan is going for short-term commercial borrowing as well as issuing Sukuk bonds, with one billion dollars worth floated five months ago leading one to assume that there might be a plan to float some more, then a situation would be being created where debt sustainability would continue to be a major issue.
He said the government needs to increase exports and decrease imports. Additionally, he suggested that exchange rates are depreciating in all the countries but the government has made a strong rupee an issue of ego and one hopes that our currency is allowed to settle at a more realistic value. He said foreign direct investment has to be enough to finance the imports.
Pasha said the current trend is not sustainable as Pakistan revenues are not sufficient to cover the debt servicing in the first quarter of 2017. How would the country manage defence expenditure of Rs 1.4 trillion and development expenditure of Rs800 billion under these circumstances, he questioned. This is a very dangerous development, he warned. He said hopefully the revenue situation would improve in the third and fourth quarters of the current fiscal year.
Pasha said that under normal circumstance and if the country is in IMF programme, there would have been a mini-budget but given the momentum towards election and Panamagate, the government is unlikely to go for mini-budget. On the other hand, the government would continue to give some tax concessions, subsidies and amnesty schemes. He said the government has not raised the price of petroleum products in line with international prices, which is a good measure, he maintained.
Hafeez Pasha added that the government still has a margin with respect to petroleum prices because statutory rate of sales tax is 17 per cent and main revenue spinner is high speed diesel. He said at one time last fiscal year, the government increased sales tax on HSD to 51 per cent and now it is at 25 per cent.
Pasha said the China-Pakistan Economic Corridor is a game changer once the plants become operational but as long as plants are being set up, machinery would be imported and there is only one way to offset the pressure on balance of payment position: if foreign investment also comes from China. He said this is not happening at the moment according to State Bank of Pakistan figures. Pasha was hopeful that the issue would have been taken up by the Minister for Planning during the recent JCC meeting. The CPEC is certainly a game changer and the government must have confidence that people of all the provinces want early completion of the project.
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