ISLAMABAD: Pakistan’s external debt is projected to rise to $90 billion in the next four years against existing the $65 billion whereby Islamabad will need $20 billion annually to meet external financing requirements.
This alarming projection was made by former finance minister Dr Hafiz A Pasha during the second national debt conference organised by the Policy Research Institute of Market Economy (PRIME) here on Saturday.
The economic experts asked the government to bring all foreign loans before parliament for seeking approval, making the debt office autonomous and ensuring transparency in debt figures.
Dr Pasha made alarming projections on the basis of data obtained from the Planning Commission, State Bank of Pakistan, Economic Affairs Division and National Electric Power Regulatory Authority. The $14 billion difference was mainly on account of foreign loans that will be pouring in to finance the China Pakistan Economic Corridor projects. However, the government has not yet included CPEC related projection as part of its debt liabilities.
Former Secretary Finance Wajid Rana said that the present government piled up $26 billion on account of external debt during the last two and a half years rule.Dr Hafiz A Pasha said that the incumbent regime would not go for the IMF programme after expiry of existing bailout package by end of next year 2016 in a bid to avail itself of fiscal space but the country would have to go back to the IMF programme after completion of five-year tenure and coming into power by the next government after general elections in 2018.
However, Director General Debt Office, Ministry of Finance Ehitsham Rashid said that although they did not yet know exactly about the debt liabilities going to be piled up by the CPEC projects but overall the net increase would not be much higher.
Without sharing any specific figure on debt projection, he claimed that the debt to GDP ratio would be brought down below 60 percent over the next three years in line with Fiscal Responsibility and Debt Limitation Act.
He said that the external debt stood at $51.3 billion which was an obligation on government revenues while remaining $15 billion loan was largely obtained by the private sector. He said that the debt to GDP ratio would be brought down through reduced budget deficit and scaling up GDP growth over the next a few years.However, Dr Pasha made some scary projections on debt issue and said that the debt to revenue ratio would climb to 750 percent during fiscal year 2018-19.
Dr Hafiz A Pasha highlighted that 2018 would be a critical year for Pakistan since most of the accrued debt was scheduled to be paid by then. He said if Pakistan was to successfully pay its debt by 2018, without the help of IMF it must increase its exports by 50 percent i.e. from 24 billion US dollar at present to 36 billion US dollar by 2018-19. He also highlighted the implications of CPEC on the debt liabilities post-2018, CPEC liabilities: $11bn for highways, approx 75-80 percent of rest debt. He said that debt to revenue ratio would reach 752 percent by 2018-19 up from its current level of 643 percent as of 2014-15. He explained that $6.5b to $20bn was the external financing need today and this would take the external debt to $80 billion. Pasha stated that since 1958 Pakistan had taken 19 IMF programmes and this means that every once in 3 years Pakistan went to IMF.
Dr Pasha said by 2018-19, the amortization payments will double to $8.3 billion. The current account deficit – the gap between external payments and receipts, will exponentially widen to 4 percent of total size of economy against this year’s level of just under 1 percent of the GDP, he said. The current account deficit would widen due to import of machinery, plants for CPEC projects and imported fuel like Liquefied Natural Gas (LNG) and coal.
Former secretary Finance Abdul Wajid Rana said that the constitutional forums like National Economic Council (NEC) and Council of Common Interest (CCI) were not discussing the real issues confronting the national economy and mantra of everything is ok to run the economy.
He said the Debt Management Office had become a subservient to secretary finance and was not autonomous as enshrined in the law.
Dr Kaiser Bengali said that Pakistan was heading towards Greece model but it would take around 10 years to reach that unsustainable level. He said that there was a need of transparency and every foreign loan contracted with multilateral, bilateral or company should be brought before Parliament for approval.
Sakib Sherani, former principal economic adviser to Ministry of Finance said that the government was playing with the debt figures whereby the debt-to-GDP ratio had become irrelevant in case of Pakistan. He said the country lacked the capacity to repay the debt even at current 65 percent of the debt-to-GDP ratio was not sustainable.
He said the debt to revenue ratio was more relevant if this ratio was beyond 350 percent indicating that the debt burden was not sustainable. He said according to SBP’s debt definition, the debt-to revenue ratio was 452 percent while after including the debt that the government did not count as its liability, the ratio would jump to 523 percent.
