Islamabad, December 12, 2015: Eminent economists and debt policy experts of the country have asked the government to scale down public debt, improve its composition, condition debt contracting with returns, and manage it professionally. These views were expressed in the National Debt Conference held in Islamabad.
Eminent economist of Pakistan, Dr Hafiz A. Pasha highlighted that 2018 will be a critical year for Pakistan since most of the accrued debt is scheduled to be paid by then. He said that if Pakistan is to successfully pay its debt by 2018, without the help of IMF it must increase its exports by 50% i.e. from 24 billion USD at present to 36 billion USD by 2018-19. He also highlighted the implications of CPEC on our debt liabilities post-2018, CPEC liabilities: US$ 11bn for highways, approx 75-80% of rest debt. He said that Debt to revenue ratio will reach 752% by 2018-19 up from its current level of 643% as of 2014-15. He explained that $6.5bn to $20bn is the external financing need today and this would take our external debt to 80 billion USD. Pasha stated that since 1958 Pakistan has taken 19 IMF programs and this means that every once in 3 years Pakistan went to IMF.
Speaking on the conference Mr. Ethesham Rashid DG Debt Ministry of Finance said that foreign debt is declining for the last five years because government was unable to raise the targeted amount from external sources so it ventured into domestic resource. He further stated that for three years government borrowing and debt strategy is in place and the office is working to bring the debt-to-GDP ratio closer to 60 percent benchmark as it started to increase after 2012. He also informed that participants that there is difference between total debt and public debt and it should insure that when a figure of debt is reported it should be the figure of public debt as that is the liability of government and is currently at $51.3 billion.
Speaking at the conference, noted economist Dr. Qaiser Bengali said that rising trade and fiscal deficits are the major reasons behind escalating public debt. Dr. Qaiser highlighted that overall Tax to GDP ratio is 9.0% and during the last 7 years current expenditure (as a percentage total revenue) averaged around 117%. His calculations revealed that in the last one year exports declined by 13% and average trade deficit (from 2009-2014) has reached to $13.6 billion. He opined that, from 2013 to 2015, as a consequence of both these factors total debt has observed growth of 26.9% and external debt jumped up by 10%. He said that, from 2013 to 2015, Debt to GDP ratio averaged 69.5%.
During the conference, Ex Secretary Finance, Abdul Wajid Rana, explained the principles of fiscal and debt management. He said that these principals are being ignored by the previous as well as the present government. Pubic Debt was targeted to be 60% of the GDP by 2013, however, it is currently hovering around 64.6% as a percentage of GDP. The government also missed the target of doubling the expenditure on health and education. The revenue balance is deplorably below the target and it is still on the deficit side (-1.7%). He further stressed that the expenditures at federal and provincial level should be adjusted in case revenues fall short of the determined target.
While speaking at the occasion, Masud Al Taj, Deputy Director, State Bank of Pakistan highlighted that in Pakistan, banks’ credit to the private sector (as % of GDP) has seen a decline since FY08, sliding from 27% in FY08 to 13% in FY15. He said that demand and supply side factors have influenced the credit pattern and contributed towards low private sector credit off-take in Pakistan. He also said that on the supply side, government reliance on the banking system is one of the major constraint in the availability of credit to the private sector.
Notable expert on the economy, Mr Shakib Sherani said the current debt-to-GDP ratio of 64 percent increases to 75.1 percent when additional liabilities of the government is taken into account. He also stated that whenever the debt-to-revenue ratio exceed 200 percent it becomes unsustainable and in case of Pakistan this ratio stands at 523 percent of GDP. Commenting further he said that in 2018 this ratio is expected to increase to over 700 percent of revenues.
Development expert Dr. Vaqar Ahmed emphasized on debt should be studied keeping in view its intergenerational implications. He noted that capital markets for public debt are not developed and pointed how successfully the regional economies are experimenting with this idea. He identified that in availability of this market is lack of competition and insisted the need for the competition commission to play decisive role in this regard by ensuring competitive pricing of government debt instruments and its more widespread presence instead of just in Karachi. He stated that general population of the country should be integrating into financing projects.
While addressing the conference Dr. Shimail Daud pointed out that the government has dried up funds available for private sector. He said that SMEs are playing a major role in the wellbeing of the economy but its share in private lending was just 6.3%. While it was 6.8% in 2012 and 6.5% in 2013. He said that from 2013-2014, SMEs borrowers have been declined by 6.7%. He explained that out of the total credit advanced during Sep 2015, 66 percent was extended to the government sector and the remaining left-over of 34 percent was directed to the non-government sector.
Mr. Ali Salman, Executive Director PRIME Institute, said that it is difficult to imagine a debt- free government even though balanced budgets can be produced. Thus, effective debt management, both through constitutional provisions of fiscal limitations and parliamentary oversight over debt transactions, is critical. He said that the purpose of National Debt Conference is to create awareness about debt structure, sustainability and management for intelligentsia, policy-makers, debt managers, business community, media, academia and public at large.
National Debt Conference was organized in Marriot Hotel Islamabad by PRIME Institute, an economic policy think tank in Islamabad, with the support from Friedrich Naumann Foundation for Freedom.
The one-day conference was addressed by noted economists and experts including Ehtesham Rashid-Director General, Debt Policy Coordination Office, Government of Pakistan, Dr. Hafiz A. Pasha- Managing Director, Institute of Policy Reforms, Dr. Kaiser Bengali-Consultant for Economic Affairs, Government of Balochistan, Dr. Vaqar Ahmed-Deputy Executive Director, SDPI, Dr. Pervez Tahir- Former Chief Economist, Abdul Wajid Rana, Ex Secretary Finance, Government of Pakistan and Masud Al Taj-Deputy Director, State Bank of Pakistan. Other noted speakers included Dr. Shimail Daud Arain and Sakib Sherani.
To follow up with the conference proceedings, please click here.
For inquiries, please contact: Talha Hassan, Research Analyst, PRIME Institute: 0323 3333 489