Technically, the public debt is the government’s liability but in practical terms it is the ordinary taxpayers who provide funds for payment of interest and principal on the public debt. The massive public debt has caused the diversion of funds from the already neglected social sectors like health and education and is the reason for Pakistan spending less than 4 percent of GDP on these sectors.
Debt obligation on Pakistani nation in volume terms is increasing substantially due to a large trade deficit, saving-investment gap, slow revenue growth and rapid growth of public expenditure.
At the end of March 2009, total outstanding public debt (external and domestic debt) stood at more than 97 billion dollars. Total outstanding domestic debt rose by a worrisome Rs484.4 billion or six billion dollars during nine months to Rs3.75 trillion by the end of March 2009 from Rs3.27 trillion recorded at the end of fiscal year 2007-08. External debt stock has also increased by $3.86 billion (Rs308.4 billion) during the period under review to 50.14 billion dollars.
With total population of 165 million, each Pakistani by end of March 2009 owed about Rs47,350 or $591 in public debt (domestic and external debt). Interestingly, in the last 15 months, per head public debt burden in absolute term increased by $41, as at the end of December 2007, the per capita debt was recorded at $550 dollars.
During the last three and nine months, Pakistan external debt burden increased by $14.31. At the end of June 2005 total stock of debt borrowed from external sources stood at $35.83 billion while at the end of March 2009, it jumped to $50.14 billion.
Every military and political administration made reckless borrowings to bridge budget deficit (revenue and expenditure gap) without thinking of the long-term consequences for the national economy.
Rupee which depreciated by more than 30 per cent to about 80 rupees a dollar pushed down Pakistan’s per capita income to $1,071 in 2008-09 against $1,102 in previous fiscal.
Keeping in view these statistics, Pakistani citizens per head debt is about 55.2 per cent of the per capita Gross National Income (GNI). Besides, Pakistan debt is about five times more than total average annual exports earnings and six times its budgetary revenues.
According to the government’s State Bank of Pakistan (SBP) latest figures, during the last years’ external debt increased significantly. On June 30, 2003, it stood at $32.46 billion, June 2004 ($32.93 billion), June 2005 ($35.83 billion), June 2006 ($37.47 billion) June 2007 ($40.48 billion), June 2008 ($46.28 billion) and at the end of March 2009, it jumped to $50.14 billion. More worrisome is that that in a span of six months (September-December 2008-09), the country’s external debt increased by $4.63 billion.
It is worth mentioning that a total of 23.9 percent of Pakistan’s 165 million people live in acute poverty. Social safety nets of just less than two percent of GDP are available to the population and inflation is going up and up that further pushing the masses below the poverty line.
Ironically the economy has had to take a double hit in the shape of Pakistani rupees depreciation against the US dollar and the greenback (US $) losing value against hard currencies like Japanese yen (JPY), Euro, SDR and others which multiplied the burden.
Economic pundits believe that with each one-rupee appreciation in US dollar, the stock of Pakistani external debt increases by Rs45 billion. It is interesting to note that during the fiscal year 2007-08, greenback appreciated against rupee by more than 12 rupees. Dollar depreciation against other major world currencies was also worsening the country’s debt position and just piling up the stock of external debt in dollar terms.
Though, the government was experiencing huge current account deficit (CAD) and each month it inched up by more than a billion dollars there was a strong anticipation of rupee depreciation against major currencies, yet the government was unaware of its implications on debt stock or otherwise simply made no efforts to manage it.
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