Pakistan’s Debt-to-GDP Ratio is All Time High in The Last 15 Years – Research Snipers

Pakistan’s Debt-to-GDP Ratio is All Time High in The Last 15 Years

Pakistan’s public debt-to-GDP ratio hits the all-time high during the last 15 years reaching 70.1% at the end of PML-N government, the current ratio exposes the country to many risks strangling the budget for human development.

The Ministry of Finance told the federal cabinet on Tuesday that the public debt to gross domestic product (GDP) ratio is estimated to reach 70.1 percent by the end of the current fiscal year 2017-18 in June.

The high debt ratio violates the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005. According to the act, the total public debt shall be reduced by 0.5 percent every year. The act also says, “ensuring that within a period of two financial years, beginning from the financial year 2016-17, the total public debt shall be reduced to sixty percent of the estimated gross domestic product;”

Finance secretary elaborated the budget and debt situation further, however, public debt is the direct obligation of the finance ministry, will be Rs24 trillion by the end of June 2018. Now the 70.1 percent debt-to-GDP ratio is 10.1 percent higher than the parliament set limit and 20% higher than the acceptable level for developing countries like Pakistan.

The current government had no vision for revenue and growth other than borrowing, failed fiscal policy, narrower tax base and failure to increase exports as well as attracting Foreign Direct Investment (FDI) resulted in burying Pakistan’s economy deep into debts. Even Prime Minister Shahid Khakan Abbasi said loans are not by any means alternative to sustain revenue and income streams.

However, the current PML-N government could only see borrowing as in the best interests of Pakistan during their five-year tenure which is just around the corner now.

The former Finance Minister Ishaq Dar vowed to reduce the debt-to-GDP ratio by 8.7 percent by June 2018, while presenting the last budget he vowed to bring down the debt ratio to 61.4% by June 2018.

Since 2003-04 Pakistan’s debt-to-GDP ratio is higher which was 69.7% at that time, the ratio was decreasing in the later years but started increasing again since 2008-09, the benefits of democratic Pakistan, and when PML-N government took charge in 2013 the debt-t0-GDP ratio was 64% according to the central bank report.

Moreover, Dar had made amendments in the FRDL Act 2005 twice in order to change the targets when he saw the debt piling up. During the cabinet meeting, the special assistant to Prime Minister Haroon Akhtar Khan said, debt situation had exposed the government stories about growing economy.

The next government had to spend 30% of its budget on debt servicing Rs.1.607 trillion and there would hardly be any room for human development and spending.

Under the amended FRDL Act, the public debt-to-GDP ratio had to be brought down to 60% by the end of the fiscal year 2017-18. The 70.1% ratio breached the law as well.

According to the sources in Finance Ministry, there were three main reasons for high debt ratio including 10% depreciation of the rupee against the US dollar, higher than the projected budget deficit and increasing cost of debt servicing.

Parliament had approved a budget deficit target of Rs1.479 trillion or 4.1% of GDP for the current fiscal year. But the finance ministry told the cabinet on Tuesday that the deficit would increase to Rs1.9 trillion or 5.5% of GDP.

Debt servicing cost will increase in the next budget, however, for the next financial year the cabinet has approved the lower debt-to-GDP ratio of 67.6 percent.