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Debt Whither are we walking

  • Cyrus G.
  • May, 2019
  • 217
  • Pakistan


There’s an old saying, ‘Those who can’t dance blame it on the music’ - and this best suits the state of our current debt figure that could add up during the five years of the Pakistan Tehreek-e-Insaf-led government, which is equal to the piled up total borrowing of the past 70 years.

Imran Khan has been talking about a 30,000-billion-figure debt which had reached this level in June 2018 from Rs. 6,691 billion in 2007 and blamed it on corruption committed by the governments before his. Although the former leaderships passed on to the prime minister a string of problems, one of them is the towering foreign debt, fuelled by loans from China to finance the China-Pakistan Economic Corridor.

The recent figures by the country’s central bank, however, show June’s Rs. 30,000 billion figure shooting up to Rs. 33,238 billion till December last year. What it means is that in just six months there’s an increase of over Rs. 3,200 billion. And if this debt ever goes on gliding high, the next five years when the government will be completing its term, there will be a total addition of up to Rs. 30,000 billion taking the total up to a 60,000-rupee-billion debt.

With such an increasing debt, it is never surprise to see the burden on each Pakistani climbing by over Rs. 15,000 during the first six months of the current fiscal year. When the former government left, the debt burden on each individual was around Rs. 13,8000 - that is till June 2018 − which during the first half of the current financial year has crossed Rs. 15,3000.

And there is always a plenty of lame excuses, too. For instance, Minister of State for Finance Hammad Azhar ascribes the situation to the rupee devaluation against the dollar forcing his government to go into borrowing.

Some reports then came in January this year revealing that the government had made a hefty borrowing of up to Rs. 2.57 trillion from the State Bank of Pakistan.

More than 60 percent of the money Pakistan borrowed from foreign institutions and governments in 2018 was meant to keep the country’s foreign exchange reserves high enough to sidestep bankruptcy or default on previous loans and pay for essential imports. The total debt is now 76 percent of our gross domestic product (GDP), which stands at Rs. 34,396 billion. This level is higher than the allowed limit, which should never exceed 60 percent of the GDP.

In a country, in which official reports estimate over 50 percent of the population − the world’s fifth largest − is facing food insecurity, this additional burden means more miseries for the future generation.

But while the International Monetary Fund may ease Pakistan’s problem, it will hardly tackle it as long as it keeps on building the Corridor project − never mind about loans from Saudi Arabia and the United Arab Emirates. China has now become the biggest bilateral lender to Pakistan, topping Japan. Pakistan’s central bank report of June 2017 estimated China’s bilateral debt to Pakistan stood at up to $7.2 billion, which was increased by over $3 billion in four years. Apart from bilateral debt, the rupee swaps in June 2017 stood at up to $1.5 billion, which took the figures to up to $8.7 billion.

To tackle the tricky debt situation, two clear-cut choices Mr. Khan has: one is to cancel Chinese projects to save funds, as Malaysian Prime Minister Mahathir Mohamad did back in August 2018 when he canceled two major infrastructure projects by Chinese companies for adding to the country’s heavy foreign debt burden.

The other choice for Mr. Khan is to reschedule the debt to China − perhaps, by swapping debt with equity, which in essence will transfer the Corridor project ownership to Beijing. That’s the model China executed in rescheduling Sri Lanka’s debt, turning the country’s maritime Hambantota Port officially into China’s own port, for 99 years. This was done in accordance with a landmark agreement signed early in 2017. It gives China Merchants Ports Holdings - an arm of the Chinese government - a 70-percent stake in the Indian Ocean’s key outpost.

As was the case with the Corridor project, the Hambantota Port expansion began with loans from China. But when Colombo failed to pay back the loans, Beijing then converted them to equity, in essence turning Sri Lanka into a ‘semi-colony’, though in a subtle way. The large Chinese loans, inability of the Sri Lankan government to service the loans, and subsequent 99-year Chinese lease on the port have led to accusations that China was playing the debt trap diplomacy.

To be fair, local officials...

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