Numbers Reveal How Imran Khan Is Wrong About Public Debt

Imran Khan, notwithstanding his grand claims of having great knowledge, is in fact a simpleton. Half-baked economists in his midst have taught him half-truths which he brags about publicly. Today I want to discuss two such misconceptions that Imran Khan has constantly hammered to the people of Pakistan.

Firstly, he claims that during the 10-year period 2008 and 2018, public debt increased by six times, compared to what was inherited before this period and from the time the country was established.

To be precise, on June 30, 2008, debt outstanding was Rs6 trillion and as on June 30, 2018 it was Rs25 trillion, which means an increase of Rs19 trillion in 10 years. The claim of enhancing debt six times more is false; public debt rose by three times as per numbers available.

Imran Khan’s flawed working has been the basis of his ceaseless critique of his opponents’ policies and he used it to wonder where this money has gone except in the pockets of “corrupt rulers.”

If corruption is measured by this yardstick, let us see whether this same rule would be applicable to Imran Khan’s own government. To this effect, it is important to note that he inherited a debt of Rs25 trillion. At the end of June 2021, official data of State Bank of Pakistan has reported that debt outstanding was Rs40 trillion, an increase of Rs15 trillion over a three-year period. This gives an annual average increase in public debt of Rs5 trillion. This rate was only Rs1.9 trillion per annum during the ten-year period of 2008-18.

If Imran’s rate of debt accumulation at an annual average of Rs5 trillion continues in the next two years, he will add Rs25 trillion to the debt of Rs25 trillion which he inherited in 2018, taking it to an unsustainable level of Rs50 trillion. Is he not smart enough to figure out who has done worse, the opposition governments or his own government?

The “corruption” allegation based on debt accumulation would be applicable far greater and deeper on Khan’s government than on the opposition.

The PMLN, during its 2013-18 tenure, was making serious investments in the future of this country; CPEC, ending 18-20 hours electricity load shedding, removal of gas shortages, key motorways and highways (which Khan’s government is never ashamed of taking undue credit of while doing ribbon cuttings), doubling the defence budget, tripling the public development spending, financing the wars against terrorism and doubling the provincial share from the federal divisible pool.
The “corruption” allegation based on debt accumulation would be applicable far greater and deeper on Khan’s government than on the opposition

During the period 2008-18, the average public development expenditure, as a percentage of GDP, was 4.7 percent whereas Khan’s government has brought it down to 3.3 percent. Similarly, the average annual fiscal deficit was 6.2 percent, whereas the Khan’s government has recorded an average fiscal deficit of 8.1 percent per annum. Thus, all the parameters of prudent fiscal management had been significantly better during 2008-18 than those observed in the first three years of Khan’s government.

Imran Khan should also understand that nominal debt numbers have no meaning unless they are considered in relation to the level of national income (GDP). In 2008, the GDP was Rs10.5 trillion which rose to Rs34.4 trillion by 2018. The debt to GDP ratio rose from 57.7 percent in 2008 to 72.5 percent during the 10-year period to June 2018, an increase of 14.8 percentage points in 10 years or 1.48 percentage points per annum.

During the PTI’s three years, debt to GDP ratio has escalated by 11 percentage points to 83.5 percent or 3.67 percentage points per annum. It is clear that Khan’s government has registered an increase in the debt to GDP rate which is 147 percent more than that of the opposition.

The annual increase in the debt to GDP rate as well as current level of 83.5 percent is surely unsustainable and carries serious risks for the economy as well as for our independent foreign policy.

Let us now turn to the second misconception of Imran Khan, which is related to the notion of debt retirement; it would be useful for the readers if this notion is illustrated.

In the simplest formulation, if A is indebted for Rs100 to B, he would retire his debt if he simply pays to B the amount of Rs100. Alternatively, suppose A has paid B by taking a loan from C. In such a case A remains indebted by the same amount of Rs100, not to B but to C. Thus, in the first instance, debt was retired but in the second instance debt stays the same but to a different lender.

No previous federal government in Pakistan has ever made a fake claim that it was retiring the debt taken by the previous government(s) and thus reducing the debt outstanding. This claim is normally made in the context of external (foreign) debt which is part of the total debt. Imran and his ministers have shamelessly claimed that they have retired country’s debt.

The facts speak loudly of a different story. The outstanding external debt as on June 30, 2018 was $72 billion. This has risen to $95 billion as on June 30, 2021. Thus, Imran’s government has added $23 billion or 32 percent in foreign debt in only three years.

At this rate, it would add another $15 billion to reach $110 billion in its five-year tenure. Potentially, this would add 53 percent to foreign debt of Pakistan.
The outstanding external debt as on June 30, 2018 was $72 billion. This has risen to $95 billion as on June 30, 2021. Imran’s government has added $23 billion or 32 percent in foreign debt in only three years

Imagine all governments since the creation of the country borrowed $72 billion and Imran’s government alone would have raised this to $110 billion, a staggering increase of 53 percent in one term.

Where has the claim of debt retirement gone? One minister claimed in a public meeting in Karachi, in the presence of Imran Khan: “Mr Prime Minister, your government has retired external loans of $10 billion.” All baloney.

Even if there was no addition to the debt, that is if it had stayed at $72 billion, it would have meant he didn’t take any new loans or took them to only payoff old loans in a way that the new debt was not created. Only and only if the level of external debt had gone down below $72 billion, he and his ministers would have been justified in claiming that they have retired so much of the debt.

Imran vowed to bring the debt down by Rs10 trillion. He had been very critical of the economic policies followed by the previous PPP and PMLN governments and set up the Debt Inquiry Commission to investigate the reasons behind the addition of Rs19 trillion to the debt stock in 10 years to June 2018. Despite completion of the inquiry, Imran has not made the report public.

Sadly, despite tall claims and promises, the PTI government has increased total debt of Rs25 trillion, including external loans, by 60 percent to Rs40 trillion in its three years to June 2021, which is surely an unsustainable 20 percent annual average increase. The daily average increase in the debt during PTI government works out to be Rs13.7 billion as opposed to PMLN’s Rs5.8 billion.

Pakistan’s ‘total debt and liabilities’ number has been favorite pick of Imran Khan, despite a certain portion of it being legally irrelevant, while quoting Pakistan’s debt stock during his overseas official trips.

This amount too has ballooned from Rs30 trillion (including external portion $95 billion) in June 2018 to Rs47.8 trillion (including external portion $122 billion) in June 2021, crossing over 100 percent of GDP in PTI’s three years from 86 percent in June 2018. Incidentally, the external loans, including currency swap arrangements, obtained by Pakistan from UAE, Saudi Arabia and China have not been included in the public debt as these have been parked in the balance sheet of the State Bank of Pakistan who would directly repay such liabilities as and when the same become due.

The steep increase in debt is as a result of ever-increasing expenditures, including mounting debt servicing through flawed monetary policy, but extremely slow growth in national revenue in the last three years due to the Federal Board of Revenue’s (FBR) failure to achieve the target revenue collection goals.

The Rupee depreciation by Rs44 to US dollar, climbing from Rs123 to Rs167, has been another contributor in an unprecedented debt increase in the last three years.

The truth is what I wrote earlier, Imran Khan is a simpleton, being taken for a ride by amateur ministers around him, none of whom has any training in accounting, finance or economics – never mind their loud claims otherwise. He has misled the nation continuously by uttering falsehood. His government has grossly mismanaged so far the fiscal and monetary affairs of the nation which is unprecedented in the country’s history.

The author, a UK fellow chartered accountant, is a former finance minister of Pakistan and former leader of opposition in the Senate of Pakistan