KARACHI: Expressing grave concern over swelling foreign loans and their neck breaking interests, Pasban Democratic Party (PDP) Chairman Altaf Shakoor Sunday warned that the huge debt burden may doom our economy and make the country another Sri Lanka.
He said in a statement that Pakistan is one of the 52 countries facing severe debt crisis. The most critical problem faced by the country’s economy is repayment and servicing of external debt. Persistent borrowing creates a spiral with more borrowing generating an impending economic crisis.
The empirical evidence overwhelmingly supports the view that a large portion of the government debt has negative impact on economic growth potential, and in many cases the impact gets more pronounced as debt increases. He said the high degree of indebtedness has made Pakistan more vulnerable to economic shocks and weakened the country politically vis-a-vis powerful external lenders. It has also greatly reduced Pakistan’s ability to invest in education and healthcare.
He said according to International Monetary Fund (IMF) projections Pakistan government’s gross debt will be as high as 71.3 percent of GDP in 2022. Pakistan’s GDP growth at 4 per cent during the current fiscal year. He said that as per an IMF report inflation rate would be in double digits at 11.2 per cent for the year 2022 against 8.9 per cent in 2021. He said this is a really worrisome situation.
He said that the outgoing government of PTI heavily burdened Pakistan with costly loans. Pakistan’s public debt has soared by over Rs18 trillion in the last three and a half years of the outgoing Imran Khan’s government, according to a statement from the central bank. This is more than the liabilities accumulated by any government in the country’s history.
He said that wrong government policies have made Pakistan economy crumbling under heavy burden of loans. The previous governments of Pakistan Muslim League-Nawaz (PML-N) and Pakistan People’s Party (PPP) had added nearly Rs18 trillion to the public debt in 10 years, a mark that the ousted Pakistan Tehreek-e-Insaf (PTI) government crossed in just three and a half years. Quoting a report, he said that the finance ministry has also been left at the mercy of commercial banks that are taking loans from the central bank at around 9.8 per cent but are giving funds to the government at 12.7 per cent for up to one year.
Shakoor said that the accumulation of debt is a direct result of the gap between expenditures and revenues, which is widening due to debt servicing obligations and defense needs, and the Federal Board of Revenue’s (FBR) failure to enhance revenue collection to a sustainable level.
He said that notably, the external debt of the federal government increased at an alarming pace of 90 per cent to Rs15.1 trillion in the last three and a half years. He said we are victims of debt-trap diplomacy. It is a trap in which a creditor country or institution extends debt to a borrowing nation partially, or solely, to increase the lender’s political leverage.
Altaf Shakoor said that a high level of external debt is linked with decreased economic growth but there are policies options that can help economies keep growing. Countries often borrow from foreign lenders, i.e. take on external debt, to meet their expenditure needs.
These loans are usually paid in the currency in which the loan was made. While an efficient use of debt finance can generate sustainable economic growth, high levels of external debt can be especially risky for developing countries.
He said it the need of the hour to find workable alternatives to borrowing. He said significant increases in tax and aid will be needed to ensure that the country can afford the necessary investments in healthcare, education and social protection in order to end extreme poverty. He said we must do more to improve tax collection to reduce the need for borrowing.
He asked to revamp tax collection policies of Federal Board of Revenue (FBR) by increasing the ratio of direct taxes and tighten a noose around powerful tax evaders mostly belonging to might political elite class. He hoped that the new economic team of Shehbaz Sharif government would find some creative solutions to avoid debt trap and take bold steps to generate internal funding so that country may not become another Sri Lanka.