"...Pakistan, where total debt and liabilities have crossed a whooping Rs 15 trillion. Considering the recent trends, there is zero probability of ever generating sufficient resources to meet this obligation. The more pertinent question is the extent to which the country can continue borrowing. ... Most likely austerity measures are on the cards, and it would be reasonable to put the house in order before the creditors come a calling." Extract from my article published on 11th February 2013.
Back than national debt was an alien concept for most everyone and perhaps still might have been if related political scandals had not pushed the debt burden in the limelight; on the other hand, conceivably, it had become impossible to hide a skeleton bigger than the closet. If it was whopping (typo in the published version above) for me back then, I am at a complete loss for the right adjective to describe Pakistan's total debt and liabilities today, which on 30 June 2017 stood at Rs 25 trillion; unbelievable be as it may comes closest. On the lighter side, we now know that the country's borrowing limit is above Rs 25 trillion, but the question remains pertinent, how much more can we keep borrowing.
Except that we must have already borrowed more in the quarter ended 30 September 2017, but unfortunately the State Bank of Pakistan (SBP) has not yet updated the data relating to national debt and liabilities on its website till today; again a bit of banter, if I had been a celebrity anchor on the idiot box, this omission is ripe for reporting scandalously. Nonetheless, while I was right about the probability of not meeting debt obligations from our own resources, I was utterly wrong about austerity measures. Contrarily, Pakistanis individually, and as a nation, partied heavily on borrowed money and the political leadership did absolutely nothing to control our largesse or nudge us towards moderation. Funnily enough while the opposition is loudly raising concerns over debt, the government continues to insist that the economy is on the right path.
The SBP, however, in its Annual Report 2016-17 (State of Economy) (the Report) states that all the solvency indicators weakened to some extent and the indicators related to debt servicing also deteriorated mainly due to increase in debt servicing and fall in foreign exchange earnings. Reading between the lines, since debt servicing can only increase if you continue guzzling more debt and given that the trend of falling foreign exchange earnings is not expected to reverse at least in the short term with declining remittances and exports, Pakistan will continue to have problems with solvency and debt servicing
"Nonetheless total debt and liabilities (TDL) of the country stood at 78.7% of GDP by end June 2017, slightly higher than 77.6% as of end June 2016" The Report. You can keep arguing what is government and public and private debt, or whether a trillion here or there is slightly higher, but in substance whether we owe Rs 20 trillion or Rs 25 trillion, we are perhaps in serious trouble anyway.
The external debt and liabilities reached US$ 83 billion at the end of June 2017 compared with US$ 73.9 billion. The Report delicately points out that debt accumulation might have been higher if not for revaluation gains of US$ 822.4 million. Considering that the Report confirms that PSE's debt is guaranteed by the government, as is direct investment in power albeit indirectly, baring around US$ 10 billion, most of external debt is probably public debt. As a side note the Report stresses that guarantees to PSE lenders need to be managed, whatever that means, to minimise associated fiscal cost and the debt burden.
Ironically, debt maturity structure changed for the worse during 2017 with short-term debt reaching 31% of total public debt compared with 26.3% last year; the Report believes that this has increased the rollover and interest rate risk. Most of us might recall that improving the maturity profile was presented as an outcome of prudent government strategies last year.
In managing debt, and perhaps growing the economy even, the Report asserts that SBP has been very accommodating, whether autonomously or otherwise is a decision left to the readers. Critically, by keeping the interest rates low, which policy SBPP defends with narratives that are unintelligible, and maintaining the Rupee stable against dollar at a heavy cost, the fiscal impact of debt servicing was kept lower. Finally, increasing currency by 30.5% last year and 17.3% this year, keeping money supply around 14% for last three years, with GDP growth at 5.3%, accommodating is perhaps being modest!
Back in 2013, if the debt looked like mountain, it can only look like a cliff now; if then it was rising, today we are falling, or about too. The more I need the report, the emerging challenges identified by SBP seem more and more formidable, and for my money, we seem to be disorganised to a point where it is improbable, if not impossible, that we even have a strategy. Ad hoc steps will go only so far, and there is always a risk that hurried economic decisions can have unintended consequences, necessarily not for the better. So what should be the strategy? Stop reading the Report!
(The writer is a chartered accountant based in Islamabad. Email: syed.bakhtiyarkazmi@gmail.com)