Factors of Pakistan’s Dilemma

Public debt is under going an irreversible surge during around past three years and a genuine fear of falling into a deep hole of debt trap because of it, is not unfounded. Listing some of the factors that led to it would be instructive:

  1. Disharmony between fiscal and monetary policies particularly with respect to containing inflation during past around three and its continuation till to-day.

  2. Indiscrete public borrowing, mostly from the SBP to bridge increasing fiscal deficit during FYs 07 and 08. The latter year was the worst hit. The interim government went for indiscrete borrowing to the extent of Rs 688 billion from the SBP during its three-month tenure that pushed fiscal deficit to 7.8 per cent.

  3. Extra-ordinary increase in public expenditure because of poor law and order situation and security environments is unavoidable.

  4. Extra-ordinary tightening of monetary policy during last one year plus heavy borrowing by the government that has made doing business by private sector a tough going. It has practically crowded out private sector from making investment in industrial sector.

  5. Slow down in economic growth that has impacted growth of tax revenue negatively. It has gone abysmally low to around 9.0 per cent of GDP from more than 11.0 per cent only a few years earlier.

  6. Inadequate infrastructure and availability of utility services like electricity to give boost to economic growth can be developed with huge investment that is hardly available with the government and finally

  7. Implementation of IMF recipe that has preference of achieving macroeconomic stability over boosting economic growth has slowed down economic growth to 2.0 per cent last year and could be during current fiscal year also.

  8. Global recession has impacted growth of exports negatively.

Surge in public debt in on increase currently to bridge fiscal gap and is likely to continue for quite sometime from now. Domestic and foreign debt has practically doubled within ten years from around Rs 2.3 trillion more than Rs 4.0 trillion and from around $28.0 billion to around $55.0 billion by end of current fiscal year, respectively. Cost of debt servicing has also increased proportionately and is a quite a bit of burden on public exchequer.

Can anybody tell what are the solutions available to us to overcome all above mentioned problems?


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