Debt | Farrukh Saleem


Exactly forty-five years ago our national debt stood at a paltry Rs30 billion. Imagine, over the past forty-five years our national debt has gone through the roof-from Rs30 billion in 1971 to Rs22,500 billion in 2016. In 2008, when the PPP government took over, per capita debt stood at Rs40,000. The PPP government, in exactly five years, doubled the per capita debt to Rs80,000. In 2013, when the PML-N government took over, per capita debt stood at Rs80,000. The PML-N government, in about three years, has managed to take the per capita debt to Rs115,000.

Exactly three years ago our external debt stood at $48 billion. Imagine, over the past three years our external debt has gone up from $48 billion to $61 billion; a whopping 27 percent in just three years.

For the record, Pakistan has four major sources of dollars: export receipts, remittances from Pakistani workers abroad, foreign investment coming into Pakistan and dollar-denominated loans raised by the state. Alarmingly, over the past three years our exports have gone down from $25 billion to $22 billion. For the record, remittances from Pakistani workers abroad have become erratic since the crash in the price of oil.

Alarmingly, over the past three years foreign investment into Pakistan has gone down from $2.3 billion to $1.5 billion; a whopping 35 percent decline in just three years. Alarmingly, the only thing that has gone up over the past three years is dollar-denominated debt. The billion dollar question is that how would we service this rapidly growing dollar-denominated debt with declining export receipts and falling investment by foreign companies.

To be certain, there is nothing inherently wrong with debt. If loans are invested into projects where the rate of return is higher than the cost of servicing the loan then there shouldn’t be any problem. But, borrowing dollars at interest rates of over seven percent make absolutely no economic sense because debt is a claim on future resources and our future resources are not growing at the rate of interest being paid on the loans. What we are, therefore, heading into is a classic debt trap-a situation in which it will become impossible for us to repay our debts.

Over the past 39 months, the rate of debt growth has been mind-boggling-from Rs16 trillion in June 2013 to over Rs22 trillion as of September 2016. The state of Pakistan has been borrowing an average of Rs2 trillion a year or an average of Rs5 billion a day every day of the past 39 months. Those are phenomenal amounts of borrowings. Imagine, all the debt that Pakistan accumulated over her entire life span close to 30 percent has been taken over by the current PML-N government (over the past 39 months).

By 2020, within the next four years, if our debt continues to grow at the current rate of growth, Pakistan will be indebted to the tune of over Rs32 trillion (not including CPEC-related debt). By 2025, with a debt load of over Rs43 trillion, Pakistan will not be able to service the outstanding debt and maintain essential national services at the same time.

Remember, “creditors have better memories than debtors”.