As per the national debt figures released by the State Bank of Pakistan (SBP) in November 2016:

- Total Central Government debt as on 30.09.2016: Rs19.9 trillion, ‘excluding contingent liabilities’.

- Break-up: Domestic debt=Rs14.4 trillion & External debt=Rs5.5 trillion.

- Estimated contingent liabilities: Rs1 trillion (not completely accounting for CPEC).

Comments: What this latest debt number also means is that over the first quarter (July-September) of this fiscal year, the government added to the debt by some Rs858 billion, taking the debt to GDP ratio to nearly 69.50%, which in June 2016 stood at around 66.50% - ‘Fiscal Responsibility and Debt Limitation Act of 2005’calls for 60%, which was amended last year through a ‘Finance Act’ and the new deadline for achieving this level has now been reset to June 2018!

Government’s Stance:

A) The national domestic debt portfolio as part of the total public debt is much bigger than the external debt portfolio (net domestic debt constitutes 66% and external debt 34%) – Domestic debt does not carry a very high risk.

B) Stating external debt at $73 billion is incorrect, since one should not lump together public & private external debts, and

C) In the total public debt the year-on-year growth of its short-term portfolio is 8.4%; For the medium term it is 13.7%; for the external debt the annual growth is 6.3%, and that all these growth levels in each of the specified debt components cannot be termed as being ‘exponential’.

Further, it says that its debt management strategy clearly sets target ranges for currency, refinancing and interest rate risks, and though quite a few indicators are currently in red, they still fall within the limits prescribed in its Medium Term Debt Management Strategy 2016-19. And Pakistan’s current debt at around $73 billion (over a population base of 200 million) is still quite manageable in comparison with say for example, Greece $367 billion, Ireland $865 billion, Spain $1 trillion and Italy $1 trillion.

All very well from the Government’s perspective, but the trouble is that the real underlying weaknesses become glaring as one further dissects the nature of Pakistan’s debt:

* Bad History: Our debt (historic) has little to show for in social development and sustainable big-ticket projects. For example, NPV (net present value) of our debt spending comes out to be much lower than that of European Debt spend. Even for intangible assets our deficit/spending does not match results, e.g. support over the years to sectors like health, housing, utilities, education, social benefits, etc.

* No winning public sector corporations to show for.

* Real poverty level still stuck at around 30%.

* An extremely narrow and small industrial base.

* Top-heavy public administration system that despite being inefficient has become further entrenched over time.

* CPEC is both an opportunity and a challenge. It can dramatically add to debt and contingent liabilities, if not allocated prudently and with clear surety on sustainability/feasibility of the projects under implementation. Also, repercussions to domestic manufacturing pose some serious concerns.

Expensive Debt:

- Government has been on a borrowing binge, and in the process resorted to acquiring expensive foreign and domestic debt at commercial rates.

- While it has repeatedly claimed that it is increasing its credit only to the extent of the budget deficit requirements, the reality is quite different. For example, the increase in federal government’s debt from July-September 2016, adds up to Rs858 billion, whereas, the budget deficit in the same period was only Rs450 billion - about half.

- Domestic debt in one year, December 2015 to December 2016, grew to 14.54 trillion (43% of total debt) or by 10.3% further raising dependence on commercial banks and adding to “various” other financial sector risks.

- In its own report the finance ministry has conceded that Pakistan’s debt sustainability indicators have worsened over the last 18 months.

- At this rate, if not checked (or if nothing changes), External Debt will reach $110 by 2020.

Now borrowing in itself is not essentially a bad thing as long as it can be spent in a productive manner. If all or majority of these borrowing would be put to productive use in self-sustaining projects, it would be wonderful, but then this does not seem to be the case!

Current Situation:

- Additional ‘latest’ borrowing of $4.6 billion in the last 7 months ($1.9 on commercial terms & used for project financing) + $1 from rather expensive Sukuk Bonds + $1.2 from foreign commercial banks + balance miscellaneous from the likes of World Bank, Asian Development Bank, Islamic Development Bank, UK Government (under DFID), etc.

- Our External Debt returnable over the next 15 months: $6.5 billion.

- In the Budget 2016-17: Projected annual economic assistance $8 billion. $4.6 now already borrowed but then this includes ‘budgetary & balance of payments support’, which as we know cannot be used to repay loans. Further, $1.65 billion accounted for under inflows from CSF billing is also likely to be short by about $1.25 billion.

- Reserves have slipped by around $2.5 billion since last year while the Finance Minister’s obsession with the current Rupee parity remains.

- Likely scenario going forward: Another IMF Program soon.