Drowned, sinking deeper in debt
By Huzaima
Bukhari And Dr Ikramul Haq
Pakistan,
drowned deep in debt, is sinking deeper and deeper with each passing moment.
The situation, if not remedied on a war footing, will eventually lead the
country to an economic collapse. During the last three months, the debt burden
has soared by Rs 980 billion - an unprecedented increase pushing the total
domestic debt up to Rs 15 trillion. This does not include borrowing from the
International Monetary Fund (IMF) to avert a serious balance of payment crisis.
The Muslim League Nawaz (PML-N) was very critical of the Pakistan People's
Party (PPP) government for increasing the debt burden of the country by 100% in
five years, but its own record during three months is more deplorable - adding
Rs 11 billion a day is awfully gruesome!
On 30th June 2013, the federal government's total domestic debt was Rs 14 trillion which as of today stands at Rs 15 trillion. Increase of one trillion in three months is terrifying. The total debt burden-internal Rs 15 trillion and external $62 billion-is not debated in the Parliament. The members seem more obsessed about arguing whether Hakimullah Mehsud, killed in a drone attack, is a martyr or not. For them drone attacks are violation of sovereignty but begging from USA, its allies and international donors is a matter of honour! One needs to remind them Allama Iqbal's famous verse:
Taqdeer Ke Qazi Ka Ye Fatwa Hai Azal Se
Hai Jurm-e-Zaeefi Ki Saza Marg-e-Mafajat!
[T'is the immutable decree of the Judge of destinies - That weakness of a nation leads to its subjugation]
Nobody in the National Assembly or Senate is worried about erosion of our resources consumed largely by debt servicing and how to come out of 'debt prison' that is main cause of political subjugation. They are wasting words and energies on non-issues.
When the PPP government was borrowing on an average of Rs 3-4 billion a day, Senator Ishaq Dar was very critical and now he is resorting to Rs 9-10 billion a day - still he keeps on accusing his predecessor regime for all the ills! This monstrous debt burden is going to further enhance allocation for debt servicing in the next budget. In the current year it is Rs 1154 billion, 61% of target assigned to Federal Board of Revenue (FBR) and double the defence budget of Rs 627 billion. The surge of Rs 325 billion in external debt and one trillion in domestic debt during July-September 2013 portrays an alarming situation. The continuous accumulation of internal debt - insatiable desire to get funds from commercial banks and State Bank of Pakistan (SBP) - besides depriving the private sector from much-needed funds for investment is giving rise to inflation that touched the level of 9.5% by the end of October 2013.
The data released by SBP for the first quarter of the current fiscal year reveals that:
--- domestic debt increased from Rs 9.52 trillion to Rs 10.16 trillion in just three months, showing an increase of Rs 635 billion or 6.7%. Within the domestic debt, the short-term debt ballooned by Rs 611 billion or 11.7%.
On 30th June 2013, the federal government's total domestic debt was Rs 14 trillion which as of today stands at Rs 15 trillion. Increase of one trillion in three months is terrifying. The total debt burden-internal Rs 15 trillion and external $62 billion-is not debated in the Parliament. The members seem more obsessed about arguing whether Hakimullah Mehsud, killed in a drone attack, is a martyr or not. For them drone attacks are violation of sovereignty but begging from USA, its allies and international donors is a matter of honour! One needs to remind them Allama Iqbal's famous verse:
Taqdeer Ke Qazi Ka Ye Fatwa Hai Azal Se
Hai Jurm-e-Zaeefi Ki Saza Marg-e-Mafajat!
[T'is the immutable decree of the Judge of destinies - That weakness of a nation leads to its subjugation]
Nobody in the National Assembly or Senate is worried about erosion of our resources consumed largely by debt servicing and how to come out of 'debt prison' that is main cause of political subjugation. They are wasting words and energies on non-issues.
When the PPP government was borrowing on an average of Rs 3-4 billion a day, Senator Ishaq Dar was very critical and now he is resorting to Rs 9-10 billion a day - still he keeps on accusing his predecessor regime for all the ills! This monstrous debt burden is going to further enhance allocation for debt servicing in the next budget. In the current year it is Rs 1154 billion, 61% of target assigned to Federal Board of Revenue (FBR) and double the defence budget of Rs 627 billion. The surge of Rs 325 billion in external debt and one trillion in domestic debt during July-September 2013 portrays an alarming situation. The continuous accumulation of internal debt - insatiable desire to get funds from commercial banks and State Bank of Pakistan (SBP) - besides depriving the private sector from much-needed funds for investment is giving rise to inflation that touched the level of 9.5% by the end of October 2013.
The data released by SBP for the first quarter of the current fiscal year reveals that:
--- domestic debt increased from Rs 9.52 trillion to Rs 10.16 trillion in just three months, showing an increase of Rs 635 billion or 6.7%. Within the domestic debt, the short-term debt ballooned by Rs 611 billion or 11.7%.
---
short-term debt that was Rs 5.2 trillion in June 2013 increased to Rs 5.8
trillion. The biggest jump came in the market treasury bills after the
commercial banks refused to reschedule their loans.
--- debt under the market treasury bills for replenishment of cash increased from Rs 2.27 trillion to Rs 3.1 trillion, a net increase of Rs 750 billion or 33%.
--- external debt increased by Rs 325 billion or 7.3% - as against June 30 level of Rs 4.48 trillion whereby the external debt increased to Rs 4.83 trillion. Out of the total external debt, the major increase was in the long-term debt that increased from Rs 4.48 trillion to Rs 4.8 trillion, a jump of Rs 325 billion or 7.3%.
--- 7% devaluation of local currency against the US dollar resulted in massive jump in the long-term foreign debt. By end June the US dollar was equal to Rs 99.20 that devalued by Rs 6.90 to Rs 106.1 a dollar by end September 2013.
It is worth mentioning that even entering into a tough deal with IMF has not helped Pakistan to convince other international lenders to be 'generous'. The World Bank delayed sanction of one billion dollars making it conditional with energy and taxation reforms. Two development policy credits - Jobs and Growth & Power Sector Reforms - each worth $500 million are lingering on for want of approval by the Board of Directors of the World Bank. The upfront disbursement of these, in a single tranche, could help strengthen Pakistan's reserves. The government after IMF programme hoped to receive these immediately to improve the fast dwindling foreign currency reserves that plunged to $4.299 billion - insufficient to meet even one month's import bill. The massive dip in foreign currency reserves, despite IMF's payout, has left Pakistan and the IMF bewildering!
At the time of signing the IMF 6.7 billion programme, Pakistan expected to receive additional $6 billion to $8 billion from the World Bank, the Asian Development Bank, the Islamic Development Bank and other bilateral donors over a period of three years. These institutions, after the termination of IMF programme in 2010, stopped lending to Pakistan. Now even after the renewed IMF programme, the World Bank has subjected approval of its funds to accelerating of FBR's efforts for tax compliance by the rich, revamping of Planning Commission and power sector-specific reforms. The linkage of these funds with taxation reforms has already dampened the hopes of the government as broadening of tax base received a serious setback in the first three months - FBR's lack of agility, Business Recorder, October 25, 2013.
The only way to come out of prevalent mess is to accelerate growth, generate employment, enhance tax revenues, and stop financing luxuries of elites and losses of public sector enterprises (PSEs). But the present government like PPP-coalition government is not serious about it. During its election campaign, Muslim League Nawaz (PML-N) made tall claims that on assuming power it will get rid of the "cancer of external debts". However, PML-N government is knocking the doors of international lenders more vigorously than PPP.
Internal debt has already breached the limit of 60% imposed under the Fiscal Responsibility and Debt Limitation Act 2010. The law requires the government to prepare and revise the debt management policy every year in January but nothing has been done as there is no debt reduction plan. Making things worse, the government is not inclined to impose fiscal discipline and reckless borrowing continues to pay off liabilities of the corruption-ridden inefficient PSEs. According to SBP, the funding of PSEs has inflicted economy heavily, increasing the stock of total debt & liabilities (TDL) by Rs 500-600 billion.
All the governments - civil or military alike - have failed to end debt enslavement by raising revenues even to the extent of Rs 6 trillion, though actual potential is not less than Rs 8.5 trillion [FBR's Year Book 2012-13, Business Recorder, September 27, 2013]. Unless it is done, Pakistan can never come out of the 'debt prison'. The Senate was informed on January 23, 2013 that over 3.39 million individuals had National Tax Numbers (NTNs), but only 885,999 filed their returns. The former Finance Minister, Abdul Hafeez Sheikh admitted that the number of income tax filers had drastically reduced to 1.6 million by 31 December 2012. The Senate was told that "a large number of businesses and individuals, who were regularly filing their income tax returns, are now avoiding their legal obligations by either under-declaring or incorrectly declaring their assets and incomes".
After admitting widespread tax non-compliance, no action was taken against any official of FBR. There is no will to eliminate wasteful spending on monstrous government machinery and inefficient PSEs. The way the government is behaving, our foreign debt would reach US $75 billion in 2015 and domestic debt would be Rs 20 trillion. The policies of appeasement towards tax evaders, money launderers and plunderers of national wealth and monopolisation of resources by Riasti Ashrafiya (State Aristocracy) have pushed the country towards disaster. The word 'austerity' is not available in the dictionary of the State Aristocracy-indomitable militro-judicial-civil complex and men in power. The habit of living beyond means-our national addiction-has turned the nuclear-powered Pakistanis into a nation with a beggar's bowl. When foreign lenders see the lifestyle of our ruling elite, they immediately show indignation-it is hard to believe for them that the rulers of a nation surviving on borrowed funds and on the brink of bankruptcy are capable of displaying such flamboyance.
Reluctance to collect taxes from the rich and mighty, rather giving them free benefits and perquisites at State's expense, is worsening the miseries of the poor. There is no scarcity of resources as propagated by the rulers to shift blame on others, but the real cause is outlandish living of the elites off taxpayers' money. Look at residences of judges, generals and high-ranking civil officials with army of servants and fleet of cars. Wasteful spending on State Aristocracy and unwillingness to tax the rich is playing havoc with the economy. Behind the present chaotic socio-economic and political situation in Pakistan, amongst other factors, is an ever widening gulf between the rich and the poor. With every passing day more and more people are being pushed below the poverty line, our rulers unashamedly waste billions on their comforts and personal security.
The present crisis testifies to the failure of power-hungry, money-greedy politicians and incompetent, inefficient and corrupt bureaucrats. Even the so-called technocrats always take the first flight to Washington after creating a mess and tearing apart the economic fabric of the country - where are Shaukat Aziz and Abdul Hafeez now? In this bleak scenario, Riasti Ashrafiya is not ready to surrender extraordinary perks and privileges enjoyed by them at the cost of taxpayers' money. How can rulers and bureaucrats living in fortified containments, completely oblivious of the ordinary people's plight, feel the pinch of life's hardships?
We cannot come out of debt-enslavement unless we restructure our State on the principle enshrined in Article 3 of the Constitution - from each according to his ability, to each according to his work. For this, everyone should be given work with a fair reward in return. There should be a complete change in the style of governance - the President, Governors, Prime Minister, Chief Ministers, ministers, parliamentarians, and high-ranking government officials should be given 'consolidated pay' liable to tax just like the income of an ordinary citizen. Palatial residences occupied by them should be sold or converted into income-yielding assets, and all perquisites of civil servants and public office-holders should be monetized to remove the burden off our country's broken financial back.
--- debt under the market treasury bills for replenishment of cash increased from Rs 2.27 trillion to Rs 3.1 trillion, a net increase of Rs 750 billion or 33%.
--- external debt increased by Rs 325 billion or 7.3% - as against June 30 level of Rs 4.48 trillion whereby the external debt increased to Rs 4.83 trillion. Out of the total external debt, the major increase was in the long-term debt that increased from Rs 4.48 trillion to Rs 4.8 trillion, a jump of Rs 325 billion or 7.3%.
--- 7% devaluation of local currency against the US dollar resulted in massive jump in the long-term foreign debt. By end June the US dollar was equal to Rs 99.20 that devalued by Rs 6.90 to Rs 106.1 a dollar by end September 2013.
It is worth mentioning that even entering into a tough deal with IMF has not helped Pakistan to convince other international lenders to be 'generous'. The World Bank delayed sanction of one billion dollars making it conditional with energy and taxation reforms. Two development policy credits - Jobs and Growth & Power Sector Reforms - each worth $500 million are lingering on for want of approval by the Board of Directors of the World Bank. The upfront disbursement of these, in a single tranche, could help strengthen Pakistan's reserves. The government after IMF programme hoped to receive these immediately to improve the fast dwindling foreign currency reserves that plunged to $4.299 billion - insufficient to meet even one month's import bill. The massive dip in foreign currency reserves, despite IMF's payout, has left Pakistan and the IMF bewildering!
At the time of signing the IMF 6.7 billion programme, Pakistan expected to receive additional $6 billion to $8 billion from the World Bank, the Asian Development Bank, the Islamic Development Bank and other bilateral donors over a period of three years. These institutions, after the termination of IMF programme in 2010, stopped lending to Pakistan. Now even after the renewed IMF programme, the World Bank has subjected approval of its funds to accelerating of FBR's efforts for tax compliance by the rich, revamping of Planning Commission and power sector-specific reforms. The linkage of these funds with taxation reforms has already dampened the hopes of the government as broadening of tax base received a serious setback in the first three months - FBR's lack of agility, Business Recorder, October 25, 2013.
The only way to come out of prevalent mess is to accelerate growth, generate employment, enhance tax revenues, and stop financing luxuries of elites and losses of public sector enterprises (PSEs). But the present government like PPP-coalition government is not serious about it. During its election campaign, Muslim League Nawaz (PML-N) made tall claims that on assuming power it will get rid of the "cancer of external debts". However, PML-N government is knocking the doors of international lenders more vigorously than PPP.
Internal debt has already breached the limit of 60% imposed under the Fiscal Responsibility and Debt Limitation Act 2010. The law requires the government to prepare and revise the debt management policy every year in January but nothing has been done as there is no debt reduction plan. Making things worse, the government is not inclined to impose fiscal discipline and reckless borrowing continues to pay off liabilities of the corruption-ridden inefficient PSEs. According to SBP, the funding of PSEs has inflicted economy heavily, increasing the stock of total debt & liabilities (TDL) by Rs 500-600 billion.
All the governments - civil or military alike - have failed to end debt enslavement by raising revenues even to the extent of Rs 6 trillion, though actual potential is not less than Rs 8.5 trillion [FBR's Year Book 2012-13, Business Recorder, September 27, 2013]. Unless it is done, Pakistan can never come out of the 'debt prison'. The Senate was informed on January 23, 2013 that over 3.39 million individuals had National Tax Numbers (NTNs), but only 885,999 filed their returns. The former Finance Minister, Abdul Hafeez Sheikh admitted that the number of income tax filers had drastically reduced to 1.6 million by 31 December 2012. The Senate was told that "a large number of businesses and individuals, who were regularly filing their income tax returns, are now avoiding their legal obligations by either under-declaring or incorrectly declaring their assets and incomes".
After admitting widespread tax non-compliance, no action was taken against any official of FBR. There is no will to eliminate wasteful spending on monstrous government machinery and inefficient PSEs. The way the government is behaving, our foreign debt would reach US $75 billion in 2015 and domestic debt would be Rs 20 trillion. The policies of appeasement towards tax evaders, money launderers and plunderers of national wealth and monopolisation of resources by Riasti Ashrafiya (State Aristocracy) have pushed the country towards disaster. The word 'austerity' is not available in the dictionary of the State Aristocracy-indomitable militro-judicial-civil complex and men in power. The habit of living beyond means-our national addiction-has turned the nuclear-powered Pakistanis into a nation with a beggar's bowl. When foreign lenders see the lifestyle of our ruling elite, they immediately show indignation-it is hard to believe for them that the rulers of a nation surviving on borrowed funds and on the brink of bankruptcy are capable of displaying such flamboyance.
Reluctance to collect taxes from the rich and mighty, rather giving them free benefits and perquisites at State's expense, is worsening the miseries of the poor. There is no scarcity of resources as propagated by the rulers to shift blame on others, but the real cause is outlandish living of the elites off taxpayers' money. Look at residences of judges, generals and high-ranking civil officials with army of servants and fleet of cars. Wasteful spending on State Aristocracy and unwillingness to tax the rich is playing havoc with the economy. Behind the present chaotic socio-economic and political situation in Pakistan, amongst other factors, is an ever widening gulf between the rich and the poor. With every passing day more and more people are being pushed below the poverty line, our rulers unashamedly waste billions on their comforts and personal security.
The present crisis testifies to the failure of power-hungry, money-greedy politicians and incompetent, inefficient and corrupt bureaucrats. Even the so-called technocrats always take the first flight to Washington after creating a mess and tearing apart the economic fabric of the country - where are Shaukat Aziz and Abdul Hafeez now? In this bleak scenario, Riasti Ashrafiya is not ready to surrender extraordinary perks and privileges enjoyed by them at the cost of taxpayers' money. How can rulers and bureaucrats living in fortified containments, completely oblivious of the ordinary people's plight, feel the pinch of life's hardships?
We cannot come out of debt-enslavement unless we restructure our State on the principle enshrined in Article 3 of the Constitution - from each according to his ability, to each according to his work. For this, everyone should be given work with a fair reward in return. There should be a complete change in the style of governance - the President, Governors, Prime Minister, Chief Ministers, ministers, parliamentarians, and high-ranking government officials should be given 'consolidated pay' liable to tax just like the income of an ordinary citizen. Palatial residences occupied by them should be sold or converted into income-yielding assets, and all perquisites of civil servants and public office-holders should be monetized to remove the burden off our country's broken financial back.
[This
article first appeared in Business Recorder on November 8, 2013. The writers,
lawyers and authors of many books, are Adjunct Faculty Members at Lahore
University of Management Sciences.]
Note:
Reproducing this article in my Blog does not amount to my agreeing with the
authors' point of view.
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