The state of Pakistan`s economy


Economy1.JPG

This document taken from the State Bank of Pakistan`s website shows the total debt situation of Pakistan. The total debt (domestic and external) in Pakistan has grown exponentially over the last 4 years as a result of extensive borrowing strategy of the current government. The debt profile of Pakistan includes debts from the IMF, China, Saudi Arabia and Eurobonds etc. Currently the total debt and liabilities(including external debt) of Pakistan stand at Rs 25062 billion (Roughly $2631 trillion).

The graph taken from the Economic survey of Pakistan shows the exponential growth of domestic and external debt, it shows that the dependency of Pakistan`s economy on Economy2

debts began to increase in 2008 and has since then continued in an upward trend. The graph cuts off at 2015, but looking at the stats available at Trade Economics, we can see that external debt too followed the same pattern as domestic debt. 2016 onward, external debt saw a trend of exponential growth because of the extensive borrowing strategy of the government.

Economy3.JPG

Now borrowing itself is not a problem, it is an option economies use as a temporary support to overcome economic problems. However in the case of Pakistan, borrowing has become a life support for our economy. As IMF has stated numerous times, Pakistan lacks the basic infrastructure to become a self reliant economy.

Our tax system is obsolete and ill equipped to generate the required tax revenue while following the ethical tax standards, as a result the government relies heavily on revenue generated through sales tax and reduction in subsidies to the public sector and utilities etc. Similarly our industries are struggling to keep up with local and international demand as there is no basic infrastructure for local industries to grow, which is why lately industries have been shifting from Pakistan to more business friendly and profitable areas across the Indian ocean. In the same way, the most important factor for the long term growth and development for any nation is the youth development. Recently Pakistan was ranked 154 in the youth development index. If our youth isn`t educated with the right skills, how can we expect Pakistan to develop in the next 20-30 years?

Furthermore IMF stated in their June 2017 meeting regarding Pakistan that initially after receiving the loans from IMF, the economy of Pakistan showed positive signs, as the influx of borrowed money into the system reduced the circular debt which allowed some progress, however with the passage of time the circular debt spiked up once again and the initial boost the economy got was quickly weathered down because the government did not take any long lasting step such as tax and accountability reforms to strengthen the institutions.

In the last few months, the government itself has suffered major blows as the ruling family is facing charges of corruption and money laundering. The Finance Minister of Pakistan is facing charges in the courts for possessing assets beyond means, yet he refused to resign. The Finance Minister can`t even attend the World Bank meeting where he was supposed to represent Pakistan today. 

With such a dismal state of affairs can we expect the economy of Pakistan to sustain in spite of such high debts? The debt to GDP ratio is at a staggering 77% ! A highly geared economy without the basic infrastructure to support its own weight is surely heading for a burn out yet it seems that those in charge of governance have put all of their eggs in the basket of CPEC to bail them out. Yes the “game changer” CPEC (China Pakistan economic corridor) is being dubbed as the life line of Pakistan but is it really a life line or does it reaffirm what economic analysts have already stated about Pakistan i-e our economy suffers from the Dutch disease, the geo political importance of Pakistan makes it impossible to fail, the regional powers cannot afford Pakistan to fail at any cost. In the 80`s the US needed us to fight their war in Afghanistan and today China and Russia need us to look after their trading route.

CPEC can be a game changer for Pakistan, if only the Pakistan`s government does more to secure their interests first, for the time being it seems we are happy to collect toll tax.

The next few months are going to test the mettle of Pakistan`s economy as the repayments of the loans taken in last 3 years are starting to come up. With rapidly falling reserves, reduced foreign investment and growing social and political unrest it remains to be seen if Pakistan will go once again to IMF for a bail out package or will CPEC really turn out to be a life line.

  1. State Bank of Pakistan : http://www.sbp.org.pk/ecodata/Summary.pdf
  2. Public Debt(ESP) : http://www.finance.gov.pk/survey/chapters_15/09_Public%20Debt.pdf
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