No course-correction in sight

Spearhead Analysis – 15.12.2015

gain controlThe government is once again under criticism for not ensuring transparency on measures taken within the realm of economic decision-making. This is after the questionable decision regarding exclusion of foreign loans for mega projects and recurring expenses or ‘non-plan resources’ from total public debt was taken. Instead, the government will be posting these under publicly guaranteed debt which is not included in total public debt calculations. Traditionally, external loans were classified as either ‘plan’ or ‘non-plan’ resources. Plan resources are aimed at financing the federal Public Sector Development Program (PSDP) and the annual provincial development plans.

It is being said that this has been done to downplay the extent of Pakistan’s debt woes. When compared with the previous government that was subject to censure and rebuke due to record borrowings which led to the public debt burgeoning to a whopping $25 billion in a period of just 5 years, the incumbent government has in nearly half the time taken it to $26.4 billion. It is no surprise then that the current lack of clarity and transparency is being viewed with so much suspicion.

There is a lot of confusion on the issue also because there is a huge difference between the amount that the State Bank of Pakistan (SBP) believes to be public debt and what the finance ministry is claiming – the difference stands at Rs.384 billion. The finance ministry has put the number at Rs18.14 trillion which is not being accepted as representative and accurate. One of the major reasons why the government has resorted to financial wizardry is because of the IMF’s conditions regarding the maximum borrowings the government can make for budget financing. The measure seems to be at best, a short-term fix and will only make it more tempting to borrow in the future. However, the repercussions of allowing this to become modus operandi will only keep the country locked in the vicious debt cycle.

In the past, oddly enough we have celebrated the rising foreign reserves – a condition that owes itself to heavy borrowings and this has kept us from addressing the big, sweaty elephant in the room. Imprudence and lack of vision has allowed Pakistan to look to divine intervention in the form of falling oil prices as the only recompense for believing in a better tomorrow. It is very likely that in some time from now there will be jubilation and exuberance around these freshly engineered tactics. Honest, objective and constructive criticism by the most renowned of economists will be dismissed and shunned as motivated by an agenda to sabotage and malign. Things will follow a predictable path. It is a dangerous gamble and leaves the future of the country vulnerable and murky. Hopefully, at some point the realization of such will creep in and cause the political leadership to introspect and make calculated decisions.

(Spearhead Analyses are collaborative efforts and not attributable to a single individual).