Capital suggestion
Alarm bell number 1: GDP growth. For the third consecutive year we have missed the growth target that we had set for GDP growth. To be certain, we are sitting on a population bomb and unless we add at least 1.5 million jobs every year the bomb will eventually explode. And in order to add at least 1.5 million jobs our GDP needs to grow by 7 percent a year.
The growth paradigm is more mathematics than economics: in order to grow at 7 percent a year we need an investment-to-GDP ratio of 25 percent (and a savings rate of around 20 percent of GDP). The truth is that we have not even begun to tailor our policies that would take us even close to any of those.
For the record, the average GDP growth over the past decade has come in at 3.8 percent. The truth is that we are badly conned in a ‘growth trap’. The truth is that we have no growth strategy and the truth is that we have no growth drivers. And the truth is that the population bomb is ticking.
Alarm bell number 2: Power sector. In 2006, we produced 94 billion units of electricity. And over the past decade we have produced either 5 percent plus or minus the electricity produced in 2006.
In 2013, Rs480 billion was spent to pay off the circular debt. In 2014 and 2015, an amount of Rs260 billion and Rs248 billion was budgeted for the power sector, respectively. Over the past three years, a colossal Rs988 billion has gone into the power sector – with very little or no improvement in actual generation.
In 2014, line losses were estimated at 27.5 percent and in 2015 the same had actually gone up slightly to 27.6 percent. Imagine, Rs480 billion worth of circular debt was paid off a mere three years ago and it has once again swollen to Rs318 billion. Imagine, the culprit behind the multi-billion rupee circular debt was said to be the high price of furnace oil which has since dropped by a whopping 70 percent (who is the new culprit?)
Alarm bell number 3: National debt. In 1971, our national debt stood at Rs30 billion or Rs500 per Pakistani man, woman and child. The latest figure has gone up to Rs22,000 billion or Rs110,000 per Pakistani man, woman and child.
Over the past year, our national debt has shot up from Rs19,000 billion to Rs22,000 billion. What that means is that we are borrowing Rs3,000 billion a year or a massive Rs8 billion a day every single day of the year. For the record, the government of Pakistan now allocates a full 45 percent of its entire revenue stream for debt servicing. Lo and behold, we are heading right into a ‘debt trap’ – a time when our government will no longer be able to service its debt obligations.
What we need is a thinking budget. What we need is a budget that has a new growth strategy. What we need is a budget with the future in mind.
Who said, “Man is the only kind of varmint who sets his own trap, baits it, then steps on it?”
The writer is a columnist based in Islamabad.
Email: farrukh15hotmail.com Twitter: saleemfarrukh