Government borrows $15 billion in 4 years: $40bn debt, liability
By Shahid Iqbal
KARACHI, Aug 18:
The government has borrowed a staggering amount of over $15 billion in the last four years as country's total debt and liabilities reached $40 billion mark, reveals the latest data issued by the State Bank.
Pakistan paid $9.706 billion as principal during 2003-07 and still the total external debt of the country increased by over $5 billion to push the total debt to $38.699 billion.
In 2003-04, the total external debt was $33.352 billion.
Had the government stopped borrowing, the country's total debt would have declined to $23.646 billion after payment of principal as debt-servicing at the end of June 2007.
The data showed that the country's total debt and liabilities rose to $40.172 billion at the end of June 2007 while it was $35.474 billion in 2003-04.
Pakistan borrowed over $3 billion during 2006-07 alone which was a sharp jump and was in contrast with other three years when it made moderate borrowing.
The figures reveal that the huge borrowing was made to make payment of debt-servicing and continuous current account deficits.
The massive borrowing raised the debt-servicing which had started rising after a substantial decrease in 2004-05 to $2.715 billion from $4.969 billion in 2003-04.
State Bank's latest figures showed that
Pakistan paid $13.258 billion as debt-servicing, including $3.553 billion as interest during the last four years.
The paid amount is close to the borrowing the country made during the same period.
Though the government has been claming of breaking the debt bowl, the figures showed the borrowing had been made regularly and aggressively during the period.
The cost of borrowing could be a threat to economy as average annual payment of debt-servicing reached $3.314 billion.
The government claims that the debt-to-GDP-ratio has declined as size of the GDP has substantially increased, but the ratio is not considerable while making payments for debt-servicing.
The State Bank has been purchasing billions of dollars from local market by flooding the local currency and creating inflation in the country.
Also, the current account deficit has taken a difficult shape to deal with. The current account deficit for the year ended on June 30, 2007, increased by 41 per cent to $7.016 billion.
In the wake of rising debt and liabilities, the current account deficit has become more tricky, posing a risk to the growth of economy.
Pakistan has been relying on sources of foreign exchange which are not dependable, like foreign direct investment, remittances by overseas Pakistanis and privatisation proceeds.
Despite record inflow of FDI (87 per cent -$8.42 billion) and remittance of about $6.5 billion in 2006-07 the government borrowed $3.044 billion.
Pakistan's dependence on multilateral donors has significantly increased as the country borrowed $2.157 billion last year.
The borrowing rose also because the government failed to raise dollars through privatisation and now its dependence on Global Depository Receipts (GDRs) has increased.
It has a plan to launch GDRs of National Bank, Habib Bank and KAPCO during the current fiscal.
It may help raise foreign exchange needed to meet the widening current account deficit. At the same time, reverse remittances from the country are also taking a solid shape, in result of foreign investment in Pakistan.
The outflow of foreign exchange in the form of profits and dividends has sharply increased by 60 per cent reaching close to $1 billion during the last fiscal.
If the government fails to materialise its plan for GDRs, it would have to borrow more from abroad and it would add more burden to the economy yet not able to feed its 33 per cent poor of the country.
What does it mean in real terms?
