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Pakistan’s debt-to-GDP ratio to hit 15-year high

chander_011

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ISLAMABAD: Pakistan’s public debt in terms of total size of the economy is estimated to jump to a 15-year high of 70.1% by the end of PML-N government’s tenure, exposing the country to many risks and giving less room for human development spending.

The Ministry of Finance finally acknowledged before the federal cabinet on Tuesday that the public debt-to-gross domestic product (GDP) ratio was estimated to peak at 70.1% by the end of fiscal year 2017-18 in June.

The high ratio violates the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005.




Finance Secretary Arif Ahmad Khan gave a briefing on broader contours of the economy and the budget including the debt situation. In absolute terms, the public debt, which is a direct obligation of the finance ministry, will be Rs24 trillion by the end of June 2018.

The 70.1% debt-to-GDP ratio was 10.1 percentage points higher than the limit set by parliament and 20 percentage points higher than sustainable levels for developing countries like Pakistan.

This is the result of an expansionary fiscal policy, narrow tax base, failure to enhance exports and attract adequate foreign direct investment. Even Prime Minister Shahid Khaqan Abbasi had to say in the cabinet meeting that loans were not an alternative to sustained revenue and income streams.

However, borrowing has remained the most preferred choice for the PML-N during its five-year tenure that is ending in around one and a half month.

The 70.1% ratio was 8.7 percentage points or roughly Rs2.9-trillion higher than the level that former finance minister Ishaq Dar had vowed to achieve by June 2018. While presenting his last budget, Dar had committed to lowering the debt ratio to 61.4% by June 2018.

The 70.1% ratio had been the highest since fiscal year 2003-04 when it stood at 69.7%. Since then, the ratio had been on the wane, but it started increasing again in 2008-09. When the PML-N government came to power in 2013, the debt-to-GDP ratio was 64%, according to a central bank report.

In response to the worsening debt situation, a comprehensive debt burden reduction and management strategy was designed in 2001 with a view to bringing it within sustainable limits. This strategy, together with favourable macroeconomic developments, became effective in reducing the debt burden to below 60% of GDP during the tenure of General Pervez Musharraf.

Pakistan also got a major respite in 2002 when the Paris Club rescheduled the country’s external debt of $12.5 billion in return for becoming a frontline state in the war on terrorism.

Dar had twice amended the FRDL Act of 2005 to change goalposts after the debt kept on piling.

During the cabinet meeting, Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan said deterioration of the debt situation had spoiled the government’s good story about the economy, cabinet sources told The Express Tribune.

Owing to the growing debt burden, in the next fiscal year the federal government will spend Rs1.607 trillion or 30.7% of its budget on debt servicing, which will provide little room for development spending.

Under the amended FRDL Act, the public debt-to-GDP ratio had to be brought down to 60% by the end of fiscal year 2017-18. The 70.1% ratio violated the law.

There were three key reasons for the high ratio which included about 10% depreciation of the rupee against the US dollar, higher-than-projected budget deficit and increasing cost of debt servicing, according to sources in the finance ministry.

Parliament had approved a budget deficit target of Rs1.479 trillion or 4.1% of GDP for the current fiscal year. But the finance ministry told the cabinet on Tuesday that the deficit would increase to Rs1.9 trillion or 5.5% of GDP.

Debt servicing cost will also go up to Rs1.436 trillion during the outgoing fiscal year against the budgeted Rs1.363 trillion.

For the next fiscal year, the cabinet has approved a lower debt-to-GDP ratio of 67.6%.

Government’s borrowing from the State Bank of Pakistan (SBP) for deficit financing has again crossed Rs1 trillion for the second consecutive year.

“The SBP has become complacent in distorting the debt market,” wrote former finance secretary Dr Waqar Masood Khan in a newspaper. He lashed out at the central bank for providing loans for budget financing.

“Nowhere do we hear SBP’s protests or warnings to the government for such unbridled access to financing,” he said, adding, “the whole situation is in violation of Section 9C of the State Bank Act 1956, which was previously considered by the SBP as life and death issues for its sovereignty and integrity of the financing system.”

Published in The Express Tribune, April 19th, 2018.
https://tribune.com.pk/story/1689123/2-pakistans-debt-gdp-ratio-hit-15-year-high/

Is India really winning war on economic front!!!!!!
 

oOo

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What is India's ratio:

https://www.ceicdata.com/en/indicator/india/external-debt--of-nominal-gdp

External debt:

View attachment 467678

Public (Internal) debt:

View attachment 467679

https://www.cia.gov/library/publications/the-world-factbook/geos/in.html

The total shit comes to?
50.1 + 20.1 = 70.2

This is India.
So how is India better off than Pakistan?
Lol
So Pakistan public debt must be compared with Indian total (public + external) debt just to make India fall in Pakistan bracket? :lol:

Pakistan public debt: 70%
India public debt: 50

Pakistan external debt: 90 B USD = 30% (considering 300 B USD GDP)
India external debt: 20%
 

RoadRunner401

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India= 3.287 million km²

Pakistan=796,095 km²

Not even close, but for some strange reason Indians here comparing everything to pakistan. Obsession or inferiority complex?
 
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Is India really winning war on economic front!!!!!!
You bet, she is! Slowly but surely, slipping under the radar she has leapfrogged her western neighbour in every aspect.

Couple of lines from Ulysses for our Pakistani friends.
..'T is not too late to seek a newer world..
Tho' much is taken, much abides;

But you mustn't suffer from inferiority complex and compare everything with India, that path will lead to more despair.
 

oOo

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India= 3.287 million km²

Pakistan=796,095 km²

Not even close, but for some strange reason Indians here comparing everything to pakistan. Obsession or inferiority complex?
How come comparing in percent term is unfair and gives bigger entity any benefit?

However the stupidity comes when people talk in absolute numbers, like India has X number of poor. Offcourse we will have more because we are big, percent terms gives better correlation.
 

BetterPakistan

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So Pakistan public debt must be compared with Indian total (public + external) debt just to make India fall in Pakistan bracket? :lol:

Pakistan public debt: 70%
India public debt: 50

Pakistan external debt: 90 B USD = 30% (considering 300 B USD GDP)
India external debt: 20%
I haven't seen such economic idiocy before :D :D :D

You are comparing Pakistan gross public debt to GDP ratio 70% to India net public debt to GDP ratio and the ratio you mentioned for India is false.

Economics illiterate Pakistan net public debt to gdp ratio will be less than 65% after the end of this fiscal year and India net public debt to GDP ratio is 68% so India debt to GDP ratio is high. It is better to understand economics before presenting your pathetic knowledge
 

RoadRunner401

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How come comparing in percent term is unfair and gives bigger entity any benefit?
The per capita costs of many public goods are lower in larger countries, where more taxpayers can pay for them. Think, for instance, of defense, a monetary and financial system, a judicial system, infrastructures for communication, police and crime prevention, public health, embassies, and national parks just to name a few

Second, a larger country (in terms of population and national product) is less subject to foreign aggression. Thus, safety is a public good that increases with country size. Also, related to the “size of government” argument here, smaller countries may have to spend proportionally more for defense than larger countries given the economies of scale in defense spending. Empirically the relationship between country size and share of spending of defense is affected by the fact that small countries can enter into military alliances, but in general size brings about more safety.

Third, the size of the country affects the size of their markets. To the extent that larger economies and larger market.
 

ziaulislam

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What is India's ratio:

https://www.ceicdata.com/en/indicator/india/external-debt--of-nominal-gdp

External debt:

View attachment 467678

Public (Internal) debt:

View attachment 467679

https://www.cia.gov/library/publications/the-world-factbook/geos/in.html

The total shit comes to?
50.1 + 20.1 = 70.2

This is India.
So how is India better off than Pakistan?
Lol
ISLAMABAD: Pakistan’s public debt in terms of total size of the economy is estimated to jump to a 15-year high of 70.1% by the end of PML-N government’s tenure, exposing the country to many risks and giving less room for human development spending.

The Ministry of Finance finally acknowledged before the federal cabinet on Tuesday that the public debt-to-gross domestic product (GDP) ratio was estimated to peak at 70.1% by the end of fiscal year 2017-18 in June.

The high ratio violates the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005.




Finance Secretary Arif Ahmad Khan gave a briefing on broader contours of the economy and the budget including the debt situation. In absolute terms, the public debt, which is a direct obligation of the finance ministry, will be Rs24 trillion by the end of June 2018.

The 70.1% debt-to-GDP ratio was 10.1 percentage points higher than the limit set by parliament and 20 percentage points higher than sustainable levels for developing countries like Pakistan.

This is the result of an expansionary fiscal policy, narrow tax base, failure to enhance exports and attract adequate foreign direct investment. Even Prime Minister Shahid Khaqan Abbasi had to say in the cabinet meeting that loans were not an alternative to sustained revenue and income streams.

However, borrowing has remained the most preferred choice for the PML-N during its five-year tenure that is ending in around one and a half month.

The 70.1% ratio was 8.7 percentage points or roughly Rs2.9-trillion higher than the level that former finance minister Ishaq Dar had vowed to achieve by June 2018. While presenting his last budget, Dar had committed to lowering the debt ratio to 61.4% by June 2018.

The 70.1% ratio had been the highest since fiscal year 2003-04 when it stood at 69.7%. Since then, the ratio had been on the wane, but it started increasing again in 2008-09. When the PML-N government came to power in 2013, the debt-to-GDP ratio was 64%, according to a central bank report.

In response to the worsening debt situation, a comprehensive debt burden reduction and management strategy was designed in 2001 with a view to bringing it within sustainable limits. This strategy, together with favourable macroeconomic developments, became effective in reducing the debt burden to below 60% of GDP during the tenure of General Pervez Musharraf.

Pakistan also got a major respite in 2002 when the Paris Club rescheduled the country’s external debt of $12.5 billion in return for becoming a frontline state in the war on terrorism.

Dar had twice amended the FRDL Act of 2005 to change goalposts after the debt kept on piling.

During the cabinet meeting, Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan said deterioration of the debt situation had spoiled the government’s good story about the economy, cabinet sources told The Express Tribune.

Owing to the growing debt burden, in the next fiscal year the federal government will spend Rs1.607 trillion or 30.7% of its budget on debt servicing, which will provide little room for development spending.

Under the amended FRDL Act, the public debt-to-GDP ratio had to be brought down to 60% by the end of fiscal year 2017-18. The 70.1% ratio violated the law.

There were three key reasons for the high ratio which included about 10% depreciation of the rupee against the US dollar, higher-than-projected budget deficit and increasing cost of debt servicing, according to sources in the finance ministry.

Parliament had approved a budget deficit target of Rs1.479 trillion or 4.1% of GDP for the current fiscal year. But the finance ministry told the cabinet on Tuesday that the deficit would increase to Rs1.9 trillion or 5.5% of GDP.

Debt servicing cost will also go up to Rs1.436 trillion during the outgoing fiscal year against the budgeted Rs1.363 trillion.

For the next fiscal year, the cabinet has approved a lower debt-to-GDP ratio of 67.6%.

Government’s borrowing from the State Bank of Pakistan (SBP) for deficit financing has again crossed Rs1 trillion for the second consecutive year.

“The SBP has become complacent in distorting the debt market,” wrote former finance secretary Dr Waqar Masood Khan in a newspaper. He lashed out at the central bank for providing loans for budget financing.

“Nowhere do we hear SBP’s protests or warnings to the government for such unbridled access to financing,” he said, adding, “the whole situation is in violation of Section 9C of the State Bank Act 1956, which was previously considered by the SBP as life and death issues for its sovereignty and integrity of the financing system.”

Published in The Express Tribune, April 19th, 2018.
https://tribune.com.pk/story/1689123/2-pakistans-debt-gdp-ratio-hit-15-year-high/

Is India really winning war on economic front!!!!!!




going to drop once growth picks up..its been more less table in last 5 years in 66-70% range

notice when india was picking up which led to heavy borrowing there was at phenomenal 88%

plan is to bring it to 60% in next 5 years

So Pakistan public debt must be compared with Indian total (public + external) debt just to make India fall in Pakistan bracket? :lol:

Pakistan public debt: 70%
India public debt: 50

Pakistan external debt: 90 B USD = 30% (considering 300 B USD GDP)
India external debt: 20%
wrong over both internal and external debt is counted to invent your own figures

I haven't seen such economic idiocy before :D :D :D

You are comparing Pakistan gross public debt to GDP ratio 70% to India net public debt to GDP ratio and the ratio you mentioned for India is false.

Economics illiterate Pakistan net public debt to gdp ratio will be less than 65% after the end of this fiscal year and India net public debt to GDP ratio is 68% so India debt to GDP ratio is high. It is better to understand economics before presenting your pathetic knowledge
 

Nalini

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One big mistake Narendra Modi did was Demonetization. It was a good move, had they printed all the new currencies, had it been planned properly, before announcing, it would not have hit the economy & saved may common man's losses. Even GST is good, but there is still a lot of confusion & mess with it. Again no proper planning. They should have implemented it after 2019, in Modi's 2nd term. Anyway it slowed our economy & lost the momentum which it was gaining. Though things are getting back to normal, it will take minimum another 4-5 years to fill that void.

Is India's debt to GDP ratio worrisome

Economic growth is a big factor in understanding whether a country's debt is a matter of worry or not. For economies that are growing rapidly, a higher debt to GDP ratio is acceptable. This is because its future earnings will be able to pay off the debt much more easily than a country with a slow growth rate. India on date is the world's fastest growing major economy. This coupled with multiple steps being taken by New Delhi to steadily decrease the debt to GDP ratio is a very good sign for an economy that is growing rapidly and steadily. Another factor that determines the health of an economy and its debt to GDP ratio, is its demographic. The older the average age of the countries population, greater the cause of concern. For example, an ageing population like China's is a cause of concern. India on the other hand has the world's youngest population.

Our debt is not something much to worry about for the time being, but it needs to be brought down below 60, because if our growth rate dips, export go down, unemployment rate starts going up fast, Oil prices climbs above 80 (not for the next 2 years atleast) & hold there again, then our Ship will start feeling the shaky rough waves. This is when the debt servicing will start becoming a challenge. So yes we need to quickly bring this debt down, though these debts are going in to infrastructure & development projects, we should go slow on it. The biggest blow will be if we have any major natural calamities like Earthquake, Tsunamis. Any continuous major calamities can derail all our momentum & growth. Another factor is war, a war with China will hit our economy very badly especially if we fight alone with no other country coming to support us.

We are in stiff competition with China & our population is growing so fast, we have no choice but to borrow to keep pace with the global competition & other fast emerging players. I admire the Chinese for their farsightedness & the policies they implement though many are not fair & ethical, but it has massively given fuel to faster growth for their economy.

I strongly feel it's time we implement the one child policy like China for 15-20 years. This will give us a chance to fix our infrastructure & other gaps quickly & it can put in place, our literacy, unemployment, poverty, roads & sanitation issues. This is the only solution I feel to bring down the debt below 40% easily in 15-20 years. If not this is a never ending fight. It's only going to get messy as cities are going to choke & development becomes costly & challenging. We are going to face major water, traffic, pollution & sanitation crisis from 2025 starting with all major cities. And then it will give birth to health hazards & poor quality of life.

Not to forget the whole world is in a financial crunch. The road ahead is going to be tougher. Global debt reached a record high of $164 trillion in 2016, or almost 225 per cent of global GDP. In the last 10 years China has been responsible for increase of debt in most countries across the globe.

China has built massive debts for itself, but it's smartly hedging its debt by giving loans to other countries on higher interest. They are eyeing all these countries Natural resources for easy money by debt trapping them, to not only come out of it's debt but also to rule the world. This is going to lead to civil wars in many countries across the globe once they are unable to repay these loans. China alone has contributed to 43 per cent increase to global debt since 2007.

International Monetary Fund or IMF cautioned other major economies, especially China, saying public debt in advanced and emerging market economies are "currently at historic highs." The IMF advised major economies like China to "avoid policies that increase economic fluctuations."

Vitor Gaspar, Director of IMF Fiscal Affairs Department has advised countries to build strong public finances in good times in order to tackle looming risks.
 
Last edited:

Talwar e Pakistan

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If we resolved it before, we can resolve it again. Also 70% compared to other countries isnt even that bad. The world average is 64%
 

ziaulislam

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If we resolved it before, we can resolve it again. Also 70% compared to other countries isnt even that bad. The world average is 64%
the magic number is between 50-70%..
it also depend upon tax revenue and type of loan, remember developing country loan is expensive say 6-7% as compared to developed countries of 1-2%
so for country like us with high premium bonds it is bad to be even at 70%

but as compared to india our debt is more or less the same depsite siutation getting worse in last 10 years due to very slow growth

its going to get better if we maintain 6% growth as it happened with india(dropped from 90% to 70%)
 

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