Mounting debt: Would Nawaz Govt leave a huge economic crisis behind?
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2017-11-13 16:11:21

Mounting debt: Would Nawaz Govt leave a huge economic crisis behind?

 

In a shocking development, the federal government has added another Rs1 trillion to its growing debt pile in just two months, which swelled at an alarming rate of Rs16.4 billion a day, indicating that the finance ministry cannot ensure fiscal discipline any more.

 

The federal government’s debt has increased to Rs21.8 trillion till the end of August 2017, which was Rs1.003 trillion higher than the level witnessed in June 2017, according to the State Bank of Pakistan (SBP). The federal government’s debt of Rs21.8 trillion is exclusive of its liabilities.

 

Specific red flags include, mounting short –term foreign debt, $5.8 billion in just two years, massive fiscal deficit and current account deficit (jumped 112 percent to $3.5 billion in the first quarter), lower than expected economic growth, and the ‘imbalances ‘will, become unsustainable in the absence of timely corrective policy measures’.

 

 

 Total disbursements of $10.1 billion from commercial banks last fiscal year, a budgetary deficit of Rs.2.2 trillion in 2017-18 instead of the optimistic official Rs.1.5 trillion, a 37.1 percent gap in Imports-Exports during July-September of $7.2 billion, combined with minimal forex reserves and an over-valued but weak rupee, make the economy extremely vulnerable, and even an anticipated increase in remittances and Foreign Direct Investment, cannot make up for the yawning deficits.

 

This leads to the economic equivalent of ‘do more’, that is, devalue the currency, which creates its own inflationary pressure(6 percent in 2017-18) and enhanced debt financing cost and, as collateral damage, reduced funding for social and human development. Some positives are a GDP growth of 5.5 and 5.8 percent for this and next fiscal year, and industrial growth of 7 percent, while under-performing agriculture (2.9 percent) and services sector (5.8 percent) can be jacked up with sound policies.

 

The ‘absconding’ Finance Minister, responsible for most of the economic mayhem, is otherwise judicially entangled, and now supposedly also needs medical treatment. But the ridiculous notion of resignation does not enter his head, further compounding the crisis.

 

pk.shafaqna.com

 

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