Growing debt likely to force next government to go on IMF programme

The growing domestic and external debt may force the post-2018 election government to go on an International Monetary Fund (IMF) programme to meet the yawning financing gap in 2017-18 when repayment of loans of the Sharif administration on various accounts would commence. Sources on condition of anonymity told Business Recorder that the total financing requirement may rise to $13.6 billion in fiscal year 2017-18 with the expiry of the Paris Club debt rescheduling and the start of repayment of Extended Fund Facility (EFF).
The present government has increased public debt from Rs 14.321 trillion in fiscal year 2012-13 to Rs 18.855 trillion in December 2015. External debt and liabilities have increased from $60.9 billion in fiscal year 2012-13 to $68.5 billion in December 2015.
Public debt has witnessed a phenomenal increase after 2007-08 as well as external debt due to massive borrowing in recent years. Public debt increased from Rs 6 trillion in 2007-08 to Rs 18 trillion at the end of December 2015 and external debt from $46 billion to over $68 billion. With rising public and external debt, debt servicing automatically rose.
As there is unlikely to be any let-up in debt servicing after next fiscal year, the country would require greater foreign inflows to meet the debt servicing needs and bridge the expected rise in current account deficit. The repayment of EFF as well as Eurbonds and Sukuk would commence from 2019, they said, and added that unless measures are taken to increase exports or foreign direct investment inflows the debt problem would compound. The pressure on foreign exchange reserves would rise in the event that there is a decline in remittance from the Gulf countries - a trend that is already evident in the Indian and Bangladeshi economies.
A senior official said the government may come up with some measures in the next budget or provide some kind of relief to the export sector to increase the volume and value of exports. One of the measures, the official added, could be clearance of refunds by the Federal Board of Revenue (FBR). He argued the government has been borrowing domestically to finance the budget deficit and from external resources to build the foreign exchange reserves to meet the three month import bill. He acknowledged that increase in FDI was much lower than expected and broadening of tax base was very disappointing. There are structural issues in the economy which remain unresolved, analysts added.