Borrowing up, exports down

Capital suggestion
In July-September 2014-15, the Government of Pakistan borrowed Rs110 billion from Pakistani banks. According to the State Bank of Pakistan’s monetary aggregates data, in July-September 2015-16, the Government of Pakistan borrowed Rs402 billion from Pakistani banks.
Red alert: the Government of Pakistan’s borrowing from Pakistani banks has gone up nearly four-fold.
What does that mean? Answer: The Government of Pakistan is borrowing -borrowing every rupee it can from wherever it can – to bridge its revenue-expenditure gap. Obviously, budgeted revenues are not up to expectations. Obviously, the Government of Pakistan has no will, or capacity, to cut its expenditures. The only option left is to borrow.
Pakistani banks are having a field day. They have invested a wholesome Rs5.6 trillion – almost all their capital – into government securities. That’s riskless investing. Net profit at MCB, for instance, is up a whopping 43.5 percent. For the half year ending June 30, MCB made Rs13.5 billion after taxation. For the April-June quarter the banking sector (all banks put together) recorded profits of Rs41.2 billion.
The Government of Pakistan is borrowing heavily and Pakistani banks are happily lending all they have to the government. That is not good, not good at all. Pakistan’s private sector – the real engine of growth – is getting ‘crowded out’. Bank credit to the private sector is down an alarming 54 percent from Rs325 billion last year to Rs149 billion this year.
What’s wrong with the private sector getting ‘crowded out’? Answer: What the Government of Pakistan borrows it throws it into the deficit gutter. What the private sector borrows it invests into plant and machinery – and investment into plant and machinery means economic growth and additional employment.
Lo and behold, exports are down a shocking 20 percent from $2.1 billion in September 2014 to $1.7 billion in September 2015. Red alert: Our exports are now at a four-year low (Vision 2025 promises a six-fold increase in exports in the next 10 years).
For the record, 52 percent of our exports are cotton-textile related and the All Pakistan Textile Mills Association (APTMA) claims that one out of five of its member mills has already shut down and more are thinking along those lines. APTMA claims that it now has an additional burden of Rs181 billion in the form of gas infrastructure development cess, electricity surcharges and new taxes.
The World Bank has now warned the Government of Pakistan to “address key growth constraints like electricity shortages, cumbersome business climate, complex trade regime and low access to finance.”
Borrowing is easy; cutting expenditures is tough. Borrowing is easy; economic restructuring is tough. We are already in a hole where 45 percent of government revenue is going into debt servicing. Even scarier is the fact that we are now borrowing just to pay back our old loans – and that path leads right into a debt trap.
“I not only use all the brains that I have, but all that I can borrow” – Woodrow Wilson
The writer is a columnist based in Islamabad. Email: farrukh15@hotmail.com
Twitter: @saleemfarrukh