Zafar Masud Kamran Khan Kay Saath – A discussion about rapidly increasing Pakistan Debt.
Zafar Masud (President & CEO – BOP) answers a question about the rapid increase in Pakistan’s debt during a special series of Dunya Kamran Khan Kay Saath show.
Pakistan’s debt has increased significantly in the past 15 years. Here are some key points:
- Pakistan’s external debt for 2018 was $99,223,959,505, which represented an 8.25% increase from 2017.
- The incumbent government has almost doubled Pakistan’s external debt in just three years.
- During a five-year rule, Pakistan’s external debt increased from US$52.4 billion to US$75.3 billion, an increase of 226.80 percent.
- The Pakistan government’s total debt has increased by 34.1% year-on-year to Rs. 58.6 trillion at the end of April.
- In January 2023, Pakistan’s government debt jumped by PKR 4 trillion, which is a 30% increase over the past year.
These figures indicate a significant increase in Pakistan’s debt over the past 15 years.
Mr. Zafar Masud emphasis remained on the fact that the extension of subsidy has been for non-productive sectors of the government. He said that the extensions of subsidy towards imports should have been focused more towards exports so that Pakistan’s resources could have been utilised in a productive manner.
There has been talk lately about the requirement of local currency debt rearrangement for Pakistan, necessitated by the fact that the government’s debt servicing, budgeted for 2023-24 at Rs7.4 trillion, has increased to approximately 75 per cent of total tax collection and exceeds the net revenues, after transfer to provinces, of Rs6.9tn. Moreover, local debt restructuring could be set as a condition by external creditors if the government seeks debt relief from them. In this article, we would argue that such a move would bring only temporary gains, while possibly creating bigger problems for the economy over the immediate- to medium-term, in terms of a hit on banks’ capital, freezing of credit markets and slowing down in economic activity.
There has been serious fallacy about the two most talked about concepts in recent times – “default” and “restructuring”.
These’re discussed in every household these days and it’s imperative to understand what does these terminologies exactly mean before we commence giving conclusive remarks on them and that also in a rather flippant way. These’re very serious matters and shall not be commented loosely without grasping the true meaning and implications of them.
Let me begin by clarifying that “roll-overs” are “no defaults”. Default triggers when the borrower stops from meeting its “contractual obligations” of both interest and/ or principal. This could be willful or due to genuine cashflow constraints and it’s always unilateral.
On the other hand, roll-overs are always achieved with mutual consent and it may or may not be necessitated due to cashflow constraints of borrowers.