Pakistan Drowning in debtBy Sehar Sajjad • May 31st, 2012 • Category: Lead Story • 3 Comments
Pakistan is already facing a debt of Rs442 billion borrowed from the central bank with the year still left. It’s impossible to decline the loan request from the state even if the autonomy of the Governor of State Bank is exercised. These facts have been revealed in an interview in the Wall Street Journal after Pakistan faced criticism on its monetary policy and mismanaged funds.
The world, especially IMF and other funding organizations, along with the US, ridiculed Pakistan and the government for letting the richest citizens, some of which are politicians, of the hook when it came to taxation. Pakistan is criticized publically based on the statistics indicating its tax-to-GDP ratio to fall below 10%, making it the lowest among the nations. There are other policies being implemented by Pakistan which are harboring interest for the politicians who have agricultural lands and are immune to taxation and also have lower borrowing interest rates which is creating a negative impact on the other sectors such as industrialization and academic, as less funds are available to be expended on them.
Due the increased borrowing of the government more money is being printed and circulated in the market; leading to higher levels of inflation never experienced before. It’s expected that the inflation will peak even more in the upcoming months as the government expenditure is increasing. It is of no doubt, that all this money is going directly into the luxurious visits to UK and US for attending different summits and such by the President and the Prime Minister, alike.
Pakistan, in this case, will inevitably knock the door of IMF to provide financial aid once again this year. Pakistan however, is challenged with the reimbursement of the $8 billion out of the $11 billion IMF programme which ended last year as Pakistan could not successfully reduce the deficit it was facing in its budget.
The reserves in the central bank are rapidly diminishing as the trade deficit and the substantial budget for this coming year pose a threat to asset life in the bank. With the start of the next fiscal year Pakistan has to come up with $4billion to repay IMF for its colossal borrowing.
Heavy subsidies on commodities such as power and petrol are also driving the finances of the state to an end, with the ever increasing government expense. On the 1st of June, Finance Minister Abdul Hafeez Shaikh is going to reveal the budget for the coming fiscal year. But with elections due by early 2013, Shaikh said that there would be no tax wonders in the budget.
With the rundown state of our mismanaged and vanishing funds, it’s hard to disagree with the claim WSJ made by writing that the President of Pakistan has continuously ignored the issue of the trade deficit, substantial borrowings and increased expenditure of the Government since he came to power in 2008. The poor man and the middle man all are heavily taxed along with paying rising prices for commodities, as the government borrowing is increasing the inflation in Pakistan. With the analysis of the past statistics, there is no hope in thinking that this problem will be resolved anytime soon.