An official document reveals that the federal government is carrying a debt burden of Rs14.5 trillion above the statutory limit set by Parliament, poorly implementing the debt management strategy. The skewed Debt Policy Statement 2024 from the Ministry of Finance discloses that during the fiscal year 2022-23, the federal government violated the Fiscal Responsibility and Debt Limitation Act and failed to implement the Medium-Term Debt Management Strategy—Shahbaz Rana, Debt exceeds legal limit by Rs14.5 tr, February 1, 2024
Total public debt was Rs 49,193 billion at end-June 2022, recording an increase of Rs 9,326 billion during FY 2021—Debt Policy Statement (January 2023), Debt Policy Coordination Office, Ministry of Finance
With general elections 2024 only four days away, the much-delayed Debt Policy Statement 2024, issued by Debt Policy Coordination Office, Ministry of Finance, reveals that our successive governments, including the caretakers, due to imprudent economic and tax policies, have pushed Pakistan into chronic, unremitting, unceasing debt-enslavement. Debtocracy, a term yet to become part of public discourse, is not merely an economic issue. It has multi-faceted political connotations. Once a nation is trapped in the ‘debt prison’, politically subjugation becomes inevitable. The new government formed after elections on February 8, 2024 will face an uphill task to overcome the twin menace of fiscal and current account deficits coupled with an unsustainable debt burden.
There is now a consensus amongst all in Pakistan that unless we get rid of debt enslavement through self-reliance and by exploiting our indigenous natural and human resources, our economic miseries will not end.
According to the above quoted new story, “The Debt Policy Statement evaluates the federal government’s debt policies against the principles of sound fiscal and debt management and the debt reduction path.” According to Debt Policy Statement 2024, “Pakistan’s debt to GDP ratio stood at 74.8% at the end of June 2023 compared with 73.9% a year earlier.” “Under the law, the Ministry of Finance was required to keep this ratio at 57.5% of GDP, breaching it by an alarming margin of 17.3% of GDP or Rs14.5 trillion”, claims the news story.
Exploitative neocolonialism through lenders like International Monetary Fund (IMF) and others, make the enslaved and subjugated obey their commands and follow the agenda set by them. Pakistan is a classic study of being victim of debtocracy leading to economic and political subjugation. This economic bondage is a modern form of slavery having devastating effects. The subjugated slaves live in a permanent state of submission, pain, suffering and subordination. In the capitalist world, the ‘debt-slavery-syndrome’ represents a perpetual despair and never-ending suffering for both individuals and nations.
There is now a consensus amongst all in Pakistan that unless we get rid of debt enslavement through self-reliance and by exploiting our indigenous natural and human resources, our economic miseries will not end. The fundamental question needs to be debated and tackled by the new elected federal government will: why in the name of people, our elites have been recklessly borrowing money and paying huge amounts in debt servicing, which is now six times of the amount we spend on defense!
Debt shackles cannot be broken without waging resistance against elites and the oppressors. India under the British Raj was ruthlessly plundered—see details in Class Structure of Pakistan by Dr. Taimur Rahman and An Era of Darkness: The British Empire in India by Shashi Tharoor. One needs to recall ‘Salt March’, also called Dandi March or Salt Satyagraha, the historic nonviolent protest led by Gandhi in March–April 1930.
The Salt Satyagraha was the first act in an even-larger campaign of later civil disobedience (satyagraha). Among others, Martin Luther King, Jr. later cited the Salt March as a crucial influence on his own philosophy of civil disobedience. Gandhi, he said, had sent a simple message by grasping a handful of salt on the beach at Dandi, and millions answered his call.
The most loathsome legacy of the five-year term (2013-18) of Pakistan Muslims League (Nawaz) (PML-N), again aspiring to rule Pakistan, was pushing the nation towards debtocracy. All governments, especially PML-N, borrowed recklessly, imposed harsh tax measures, and devaluing currency.
The coalition government of Pakistan Tehreek-e-Insaf (PTI) and alliance government of Pakistan Democratic Alliance (PDM) later followed the same path. With massive devaluation of currency and high interest rate by the State Bank of Pakistan (SBP), foreign/local liabilities have increased manifold.
The government of PML-N took all kinds of steps, from introduction of cash margin to imposition of heavy regulatory duties on imports, but failed to curtail the current account and trade deficit. The trade deficit hit US$ 33.9 billion as imports increased to US$ 55.2 billion during July 2017 to May 2018. Even 14% devaluation of the rupee in December 2017 onwards could not help in reducing the import bill.
The unelected ex-Finance Minister, Miftah Ismail, on May 14, 2018 told the National Assembly that borrowing of Rs. 22 trillion would be necessary for 2018-19 for payment of domestic, foreign debts, debt servicing. Thus, for the newly elected government, the deadly debt trap was already laid by PML-N.
Due to thoughtless policies of the economic wizard of PMLN, Muhammad Ishaq Dar, presently suspended senator and proclaimed offender, the country’s external debt and liabilities reached US$ 98.16 billion by the end of February 28, 2018. The position of internal debts was equally alarming. According to SBP, it stood at Rs. 26.8 trillion as on May 1, 2018. It was Rs. 22.5 trillion as on June 30, 2017.
The consequences of the economic mess created by PMLN- were obvious: more borrowing and taxes by the new government of PTI after elections of 2018, going to IMF once again, so-called austerity measure leading to retarded growth, high inflation affecting fixed income earners and the poor. Further debts, more squeezing of fiscal space—enormous debt-servicing exceeding Rs. 8000 billion and deepening of deadly debt trap, that is, to borrow just to pay back interest on old debts.
Historically, our rulers, military and civilian alike, have been seeking bailouts from IMF—many call these death-blows. With every loan came harsh conditions—ostensibly meant for economic revival and reforms leaving us in deeper quagmire. Musharraf-Shaukat duo hoodwinked the nation by claiming that they were severing all ties with IMF, whereas in reality huge loans were secured for reforming (sic) the tax, banking and justice systems—just to mention a few. Fresh loans were negotiated with renewed enthusiasm by all the successive governments, including that of Pakistan Peoples Party (PPP).
It is the duty of every government to prepare a Debt Policy Statement annually to fulfill the requirement of section 7 of Fiscal Responsibility and Debt Limitation Act 2005. The Debt Policy Statement 2023, prepared according to the author, after “strategic input and policy guidance provided by Minister for Finance and Revenue, Mr. Muhammad Ishaq Dar” presents many disturbing and worrisome facts about debtocracy.
The successive governments not only breached the limit of 60% provided in the Act but also conceded vulnerabilities on many fronts—especially the continuous shortfall in revenue targets and phenomenal increase in current expenditures, especially the debt servicing. In the first six months of the current fiscal year, it reached Rs. 4220 billion against the budgeted figure for full year of Rs 7.3 trillion. There are concerns that it will cross Rs. 8.5 trillion.
There is a desire to make 2024 the year of prosperity, but it cannot be done unless elitist structures are dismantled for which there is no inclination on the part of main political parties.
During the decade of democracy from 2008 to 2018, the Opposition parties also showed apathy by not raising a voice on the issue of gross violation of the Act. None of the Opposition parties announced a shadow cabinet or prepared a White Paper on the issue. It was their duty to create public awareness about the deadly consequences of rising debt burden and increase in debt servicing as the largest expenditure in the budget. Not a single Opposition party unveiled its own plans/strategies to meet the requirements mentioned in the Act. The latest election manifestos for elections 2024 of the all the major parties are also silent on this issue.
According to the report, “….[debt] standing at Rs. 62.9 trillion, means the country has virtually nothing in hand after paying the cost of interest on the total debt burden. Under the law, the debt burden should not have exceeded Rs. 48.5 trillion.” The report indicates total public debt at Rs. 62.9 trillion, as on June 30, 2023—domestic Rs. 38.8 trillion and external debt Rs. 24.1 trillion. The finance ministry attributes the increase in total public debt to higher government borrowing needs to finance the federal fiscal deficit and depreciation of the Pakistan rupee against the US dollar.
The latest figures of total debt and liabilities at the end of first quarter of the current fiscal year i.e. as on 30 September 2023 of Rs. 64,549 billion, available at the website of State Bank of Pakistan, present an alarming situation. The main challenge is, however, how to handle it by the members of newly elected National Assembly in March 2024. Do they understand the core challenge of debtocracy and have a roadmap to break the shackles of debt-slavery and put the nation back on the road of self-reliance and prosperity? The voters and the nation as a whole must try to find its answer on which depends the future of our youth and coming generations.
It is an admitted fact that all successive governments, military and civilian alike, have been borrowing recklessly and spending ruthlessly. Unfortunately, there persists massive wastage of funds on huge perks and benefits to the privileged classes.
The key to debt retirement is export-driven growth, creating exportable surplus, and import-substitution through rapid industralization with joint venture with foreign companies, collection of taxes fairly and drastic reduction in wasteful expenses.
The mundane reality of today’s Pakistan is that elites—militro-judicial-civil complex, businessmen-turned-politicians and absentee landowners—are very affluent, but the government is poor, requiring loans even to pay interest on loans, salaries to employees and other day-to-day expenses. How to remedy this pathetic situation is the most relevant issue, but unfortunately, it is not even touched by any political party in its manifesto for election 2024.
The key to debt retirement is export-driven growth, creating exportable surplus, and import-substitution through rapid industralization with joint venture with foreign companies, collection of taxes fairly and drastic reduction in wasteful expenses. For achieving these goals, no concrete plans based on pragmatic and sound research are available with any political party! So far, there are only clichés as also contained in Debt Policy Statement 2024 and daily public pronouncements, even by entities like Special Investment Facilitation Council (SIFC) on their website.
There is a desire to make 2024 the year of prosperity, but it cannot be done unless elitist structures are dismantled for which there is no inclination on the part of main political parties. The main political parties in their manifestos have suggested patchwork measures here and there, but those will never cure the system. The outrageous debt burden and huge fiscal and current account deficits are symptoms of illness in the system. These symptoms will keep on recurring unless the causes for illness are removed.
The cure of causes of illness – the country’s elitist economic structure, unjust tax system, monstrous unproductive expenses, non-tapping of natural and human resources and crony capitalism - needs political will, as well as a concrete agenda, and above all, the support of the masses, especially the working class and landless tillers. These are not available to any mainstream political parties.