Summary Dangerous Situation: Will Pakistan survive the maturity of $50bn in debt this year?
Dunya News Report (Humaira Sajid)
ISLAMABAD – Despite improvement in the country s security situation and the economy growing at an eight-year high, Pakistan risks default as 42 percent of its foreign debt, around $50 billion, is due in 2016, reports Bloomberg.
According to data compiled by Bloomberg, about 40 percent of Pakistan’s outstanding debt — both local and foreign — is due to mature in 2016. That’s roughly $45 billion, of which about 4.3 trillion rupees ($41 billion) is in local currency.
One of the top analysts for Pakistan at Fitch Ratings Ltd, Mervyn Tang said:“Pakistan’s high level of public debt, with a large portion financed through short-term instruments, does make the sovereign’s ability to meet their financing needs more sensitive to market conditions.”
Pakistan “does not face any difficulty in respect of its debt servicing obligations”, the finance ministry in response to the Bloomberg red flag regarding the country’s debt burden. Granted, “improving growth prospects, lower inflation and smaller budget deficit” can be marketed as ‘achievements’ of the last fiscal or so. And the ministry’s line about being “committed to successfully implementing its IMF macroeconomic stability programme” also added a touch of political correctness to the picture. But scratch the surface a little and the foreign publications apprehensions become understandable, just as the government’s claims leave a little something to be desired.
The elected government of the Pakistan Muslim League-N has however been unable to break the beggar’s bowl and the groundwork is set for taking another loan from the International Monetary Fund (IMF) to return the preceding loans.
The country might not face immediate threats of default, and the finance ministry has rightly been quick to deflect such assumptions. Bloomberg is taken seriously by all sorts of international investments, and this piece could hardly have come at a worse time for Pakistan; just when it was wooing investors to park funds here. But while spit-shining the economy might be acceptable convention, playing with numbers is not. That credit default swaps surged 56bp last week will not have gone unnoticed, especially since it is the most pronounced jump after Greece, Venezuela and Portugal. This is the result of years of mindless borrowing; to the point that successive governments have had to use loans just to stay afloat. Sadly, though, people who pay back these loans will be simple, hardworking Pakistanis who had no part in this obsession with debt.
Like its predecessor, the PML-N government failed to bring down the debt-to-Gross Domestic Product ratio to within statutory limits of 60%. It has been borrowing in violation of Fiscal Responsibility and Debt Limitation Act that binds the sitting government to keep the total public debt below 60% of GDP.
Pakistan has obtained foreign loans worth $49 billion during the last 10 years and over one-third were utilized for budgetary support instead of creating physical assets, hence raising questions of debt sustainability. An installment of worth $502m was also given in December last year on the conditions of carrying out extensive economic reforms, particularly in the energy and taxation sectors.
Speaking to a media conference, Pakistan Tehreek e Insaf Chairman Imran Khan threw a volley of questions at the PML-N leadership and expressed serious reservations over the spending of billions on the metro bus and orange train projects while 25 million kids were out of school, there were no medicines at government hospitals and no project for the provision of clean drinking water to the masses. He claimed that in two and a half years, the PML-N government had taken Rs 47, 000 billion loans and asked where this money was going.
An influential think tank Institute for Policy Reforms (IPR) criticized the International Monetary Fund (IMF) for applauding inaccurate economic indicators just to demonstrate that its program is performing well in Pakistan. IPR, in its fact sheet on the “false statements made by the IMF”, said the mission chief Herald Finger recently made “a number of factual errors” in the ninth review of the Extended Fund Facility to the country.
“This may be due either to wrong information being provided by the (Pakistani) authorities or a lack of awareness of latest trends or due to pressure to demonstrate that the program is performing well and that the staff mission has been successful in inducing improvement in the economic indicators through promotion of appropriate actions,” an IPR statement said. It said there have been a number of developments, which could impact negatively on the growth rate in 2015-16.
It said, according to the Social Policy and Development Centre’s estimates, the number of poor is annually increasing by more than three million. “The pressure for fiscal contraction under the IMF program has probably been one factor contributing to the recent increase in poverty,” the statement said.
The think tank asserted that the largest industrial plant of the country, Pakistan Steel Mills, is also shutdown. Therefore, it is unlikely that the GDP growth rate will substantially exceed three percent in 2015-16. IPR criticized IMF on its assessment on the country’s poverty reduction. The mission said, “Over the last decade or so poverty has come down in Pakistan.”
Minister for Finance, Senator Muhammad Ishaq Dar paid a visit in Dubai to participate in 10th review talks between Pakistan and International Monetary Fund (IMF). In these policy-level talks Dar lead Pakistani delegation and Herald Finger headed the IMF team. Ishaq Dar, while talking to the media said that PML-N government inherited 8.8 percent fiscal deficit when it came into power in 2013 which has now brought down to 5.3 percent and would further be sliced to 4.3 percent during the current fiscal year 2015-16.
Ishaq Dar claimed that the present government has adopted fiscal discipline in all financial sectors and the public development expenditure which were only Rs.400 billion have been increased to Rs.700 billion. Highlighting the China-Pakistan Economic Corridor (CPEC), he hoped that it would contribute a lot in furthering economic development. In financial sector, he said the government has initiated reforms which has further strengthened the financial sectors especially the banking sector in the country.
