FPCCI seeks long-term strategy to cope with debt servicing challenge 

As the country’s debt repayment capacity has been waning due to dependence on foreign loans, FPCCI apex chamber has sought a long-term strategy to cope with the challenge of debt servicing amidst huge domestic and foreign loans increased to Rs36.3 trillion or 87 per cent of the Gross Domestic Production.

FPCCI President Mian Anjum Nisar has opposed the excessive borrowing policy of previous governments, as the present government has also added an additional Rs11.35 trillion in the total public debt during the first two years in power, which is more than the total debt the previous government has taken in its five-year term.

Quoting the figures, he observed that over 40 per cent of the additional debt in the past two years is only because of debt servicing expenditures while about 30 per cent due to rupee devaluation, which was depreciated almost 47 per cent during this period. 

He flayed the economic managers for keeping the interest rate artificially high at 13.25 per cent during this period, besides devaluing the rupee more than the requirements, contributing most to lift the public debt.

Amidst consistently rising markup rate, Pakistan’s total debt and liabilities skyrocketed to around Rs36.3 trillion, which were rising at a high speed in the wake of a soaring budget deficit, he added. There was no rationalization for making changes in the policy rate because it would further increase the debt servicing cost, as the policy rate had gone up by 600 basis points during this period.

Mian Anjum Nisar added that Pakistan’s fiscal policy continued to focus primarily on macroeconomic stabilization, in response to the financial crisis, instead of putting more emphasis on reforms to foster long-term growth through industrialization by adopting advanced technology. He sought growth-friendly policies, upgraded tax and social spending, and active industrial strategies in close consultation with real stakeholders to achieve sustainable development goals.

The FPCCI President lamented that if nation today decides to retire all its public debt, it would have to give up almost 87 per cent of its gross domestic product, which is presently standing at Rs41.7 trillion, also indicating that government has violated the Fiscal Responsibility and Debt Limitation Act, which calls for limiting the debt to below 60 per cent of the GDP.

The external debt has increased by 54 per cent to Rs13 trillion in the last two fiscal years, which were about Rs8.5 trillion at the end of the previous govt tenure, witnessing a net increase of Rs4.6 trillion in the external debt, mainly owing to currency depreciation and current account deficit financing. This external debt doesn’t include loans of $5 billion obtained from Saudi Arabia and the United Arab Emirates in this period, as these loans are the responsibility of the central bank.

The government total domestic debt increased to over Rs23 trillion, up by 41.4 per cent or Rs6.8 trillion in the last two fiscal years from the domestic debt of Rs16.4 trillion reported in 2018.

The accumulation of debt is a direct result of the gap between expenditures and revenues, which is widening due to the inelasticity of debt servicing and the FBR failure to enhance revenue collection. Steep currency depreciation also contributed to the central government’s debt. The FBR suffered a record shortfall of around Rs1.55 trillion in tax revenues in the last fiscal year but the government did not hold anybody accountable. In just two years, the total public debt surged to 87 per cent of the GDP from almost 72 per cent of the GDP, which is very shaky, carrying huge risks for the economy and the country’s foreign policy.

The FPCCI President called on the authorities to strengthen fiscal discipline through additional revenue measures, especially of exports, besides efforts to contain current expenditure while protecting pro-poor spending.

He said that exports of goods and services are an injection into the circular flow of income leading to a rise in aggregate demand and an expansion of output, helping raise per capita incomes and reduce extreme poverty especially in developing economies like Pakistan.

Mian Anjum Nisar said that consistent borrowing by developing economies to shore up its reserves in desperate times has been leading towards a debt trap. He said that borrowing from friendly countries should only be seen as a short-term solution to prevent reserves depletion and consequent further depreciation of the currency.  He raised the demand for focusing on export promotions, besides making the domestic industry more competitive for real economic growth.