EDITORIAL: Total domestic and external debt stocks rose by 6 percent during the first seven months of the current year and in actual terms, debt rose from 60.481 trillion rupees in June 2023 to 64.842 trillion rupees in January 2024 – a rise of 4 trillion rupees.
Two observations are in order. First; the comparison is not with the comparable period the year before but the end of the last fiscal year with the first seven months of this year. And this rise is almost entirely sourced to a rise in domestic debt — from 38.3 trillion rupees in June 2023 to 42.62 trillion rupees end January 2024 or a rise of 3.8 trillion rupees.
The reason for this is sourced to three factors. First, the budgeted amount of 6.1 billion dollars under the head of borrowing from the commercial sector abroad and issuance of sukuk/Eurobonds was not realised due to the three major international rating agencies leaving Pakistan’s rating unchanged in spite of the Stand-By Arrangement (SBA) loan approval by the International Monetary Fund (IMF) board in July last year and the success of the first review on 15 November 2023.
IMF in the first review documents uploaded on its website in January this year noted that “the programme is fully financed and the reserve position at end-FY24 is consistent with programme objectives, although risks remain exceptionally high.
Over US$3 billion in commitments made at the time of the SBA request have already been delivered, with an additional US$1 billion in multilateral support expected by end-2023. Further assurances for bilateral support of US$0.7 billion were reconfirmed ahead of this review.
However, the Islamic Development Bank is now likely to deliver only a small fraction of the US$1 billion pledged ahead of the SBA during the programme period. Offsetting that, a debt rearrangement with a major bilateral creditor has generated amortization savings of around US$1.2 billion in both FY24 and FY25.
Nonetheless, financing risks remain exceptionally high, arising from large public-sector external rollover needs, a persistent current account deficit, a difficult external environment for Eurobond and Sukuk issuance, and limited reserve buffers in case of delays to anticipated inflows.
Second; the failure of the caretakers to contain the budgeted current expenditure was indicated by the 43 percent rise in fiscal deficit in the first half of the current year compared to the same period the year before as noted in the Finance Division’s February Economic Update and Outlook.
Sadly, like their elected counterparts the Caretaker team opted to slash development expenditure, by 5.9 percent during the first half of the current year compared to the same period the year before, with negative implications on the growth rate that critics claim may be the reason behind the failure of the Pakistan Bureau of Statistics (PBS) to release the growth rate for the second quarter of the current year (October to December 2003).
And finally, there is no doubt that the taxation structure of this country requires urgent reforms - from the current heavy reliance on indirect taxes (to the tune of over 75 percent) whose incidence on the poor is greater than on the rich to direct taxes based on the ability to pay principle which would necessitate widening the tax net and removing all exemptions currently enjoyed by the wealthy (inclusive of raising provincial farm tax on the rich landlords, the builders, the traders, the aarhtis).
The Caretakers consolidated reforms, though they were restrained from their implementation by the Election Commission of Pakistan, which were largely identified during the tenure of previous administrations but never implemented for political reasons.
However, they did succeed in making inroads into taking punitive measures against those who did not file their returns or evaded taxes but what is relevant to note is that these reform proposals consisted mainly of administrative measures.
Be that as it may, one can only hope that the Shehbaz Sharif-led government will tackle this problem proactively, which would have beneficial political implications if these tax reforms shift the burden away from the relatively poorer sections of society towards the rich and influential.
To conclude, so far no government, civilian or military, elected or caretaker, has taken bold measures to deal with the economic impasse that has deepened over decades of flawed policies, which explains why the budget deficit is high, the current account deficit periodically requires the country to go on yet another Fund programme and the rest of the world is increasingly wary of extending loans without a strictly monitored Fund programme.
Copyright Business Recorder, 2024
Comments
Comments are closed.