The increasing debt- Blog by Fawad Chaudhry

The path that we have been treading for the past five years seems to be coming a head. Five years ago this government came to power on the back of ironic and hypocritical promises that even then seemed laughable. However, what is now unfolding as a result of the PML-N’s disastrous policies evokes more tears than it does laughs.

Unemployment is at an all-time high, inflation is rearing its ugly head, our reserves are at dangerous lows, and the government’s response to all this, its solution to fixing it all, an amnesty scheme that will allow the rich to wipe clean any and all black money they have accumulated over the years.

The present government's negligent handling of the economy over the last five years has caused the country’s public debt to shatter the 60% Debt-to-GDP limit imposed by the Fiscal Responsibility Debt Limitation Act of 2005. According to the act, Pakistan’s total Debt-to-GDP should by law not be more than 60%, but it now stands at 70.1%. What’s worse is that even now the government does not seem to accept the fact that debt is an issue. They will have us believe that it is all under control and that good days are right around the corner. How can this country tackle such a serious economic concern when those at the helm have their heads buried in the sand?

Basic amenities at the mohallahlevel like clean drinking water, paved streets, school facilities, hospital facilities etc., will not be provided because the resources required are going to be used for debt servicing. And of that, most of the resources will be used to account for the interest on that debt, meaning the debt itself will only be marginally diminishing, making this a concern that could plague us all for a time period longer than any we are calculating for at the moment. The increasing debt will continue to fuel inflation and reduce the savings of the common man, as the government has year on year continued to increase indirect taxes, which inevitably get passed on to the end consumer and are borne by the masses at large. This will further push people below the poverty line, a number that is already distressing. People will struggle to make ends meet, and those below the poverty line will be forced to press their children to find employment, fueling child labour further as well as further increasing the number of children out of schools. The present government has effectively snatched the people's right to educate their children as well as provide for a reasonable living standard, all in a bid to fuel their own lavish lifestyles and hubris. Oh, and before we move on to how these moves will further affect us, it’s worth mentioning that all this debt accumulated over the last five years has mostly been spent on wasteful and over-invoiced projects, none of which are near completion and most of which are now facing allegations of corruption and financial irregularities.

The government changed the goalposts twice by amending the FRDL Act 2005 to hide its incompetence and proceeded to indulge in figure fudging. The government will add additional debt because it cannot control its fiscal deficit and has to borrow to sustain it. Against the target of 4.1% of GDP (Rs 1.48 Trillion), the fiscal deficit will be 5.5% of GDP (Rs 1.9 Trillion).

Development expenditure will be the first casualty; it will be slashed to meet the obligation of high debt payments. Private sector credit will be sucked up by the government, leaving barely any funds for the industry to be invested in business and will resultantly take its toll on job creation. The already rising unemployment will continue to rise.

We’ve seen two rounds of Rupee depreciation already, and the national currency will further devalue from its present level of Rs 115 against the US Dollar. This is already being witnessed as we speak as the Rupee has started to fluctuate and the Dollar now continues to hover around Rs 118.Any economist worth the title will tell you this exchange rate will hit Rs 125 in the near future. The rupee devaluation not only directly impacts inflation, but also each time the rupee devaluates, an additional Rs. 97 Billion is added to the debt.

This means that the current account deficit will further increase, putting more pressure on the rupee. We will be forced into the IMF program, for the umpteenth time, to meet the import bill (Balance of Payment crisis) and the ballooning Fiscal Deficit. We will be forced to change our stance on certain national security issues, as it is no secret that the US has immense leverage on the IMF and more often than not it is used as the stick in US foreign policy against developing and less developed countries.

Higher resources will be required to meet the higher debt repayments, giving rise to a circular vortex effect. Higher debt repayments will continue to squeeze the already diminished development budget, and on and on this vicious cycle will continue showing no signs of abating.

Those already struggling to make it in this country will have the odds stacked against them even more and will have to be content with a lower standard of living due to the absence of basic facilities.

Money for health, education, clean drinking water, irrigation water, all sectors that are already suffering, will be further slashed. Our ever-crippling energy crisis will further worsen, paving the way for a nightmarish return of load shedding, which will not be going away anytime soon owing to the sky rocketing circular debt figure. Small as well as established businesses will be severely affected since load shedding will either cut down their operations, depriving them of economies of scale, or will force them to turn towards more expensive means of energy generation such as diesel gensets.

All this, all of this because the government refuses to acknowledge its own incompetence and continues to stay in denial about the reality that we, all of us, are facing. It seems the more, nay, the most pertinent question for them, the one question that they think takes precedence over all of us, is mujhay kyun nikala.