Malice Towards None & All: Pakistan’s Sordid Story Of Debt Enslavement

Malice Towards None & All: Pakistan’s Sordid Story Of Debt Enslavement

Qarz Ki Peetay Thay Mai Aur Samajhtey Thay Ki Haan,

Rang Laavegi Hamari Faaqa-Masti Ek Din

Mirza Asadullah Khan Ghalib

(Hooked on borrowed funds for intoxication, yet kept harboring false hope of wonders occurring someday)

Our total public debt—internal and external—has been increasing at a frightening rate and has now become unmanageable due to sheer callousness of the successive governments since the dawn of the era of civilian rule in 2003. The present government led by the Pakistan Democratic Movement (PDM), though it came into power for a little over two years on April 10, 2022, it has since then kept borrowing recklessly to meet country’s burgeoning fiscal deficit, which is to going to be around Rs. 5.9 trillion at the end of the current fiscal year (2023-24) against net federal income of Rs. 4.4 trillion.

Today’s Pakistan represents a state where the ruling trio—military-civil complex, crooked politicians and profit-hungry businessmen—is very affluent, but the country is on the brink of bankruptcy. This state of affairs is the direct outcome of policies of successive governments—military and civil alike—allowing a free hand to forces of loot and plunder of national wealth, tax evasion, and corruption.

The tax and non-tax revenues projected for the forthcoming fiscal year 2023-24 are not enough even to meet current expenditure, what to speak of funding proposed federal development outlay of Rs. 950 billion. The net income of the federal government, after transfer to the provinces under the 7th National Finance Commission (NFC) Award is Rs. 6887 billion. Thus, even for payment of interest of Rs. 7,303 billion, Rs. 416 billon will have to be borrowed. All other current and developmental expenses will be met from costly borrowed funds, both internal and external. This is the worst one can expect from any budget. The unsustainable accumulation of debts, internal and external, by successive governments has pushed the country into a deadly debt trap (prison) for which no remedial measures are suggested in the budget 2023-24

The fundamental question to be asked and debated is: why in the name of people have our elites have been mindlessly and ruthlessly borrowing money and paying monstrous amounts in debt servicing.

Once a nation is trapped in a ‘debt prison’, it characteristically becomes politically subjugated as well. The lenders exploit the enslaved and subjugated. Pakistan is a classic study in what victims of chronic debt experience, leading to economic and political subjugation. Slavery, physical or mental, has devastating effects. The subjugated live in a permanent state of submission, suffering and subordination.

In the capitalist world, the ‘debt-slavery-syndrome’ represents a perpetual despair and never-ending suffering both for individuals and nations. This is the worst one can think of in the age that is also known for enlightenment and struggle for human rights.

Economists mention debts and liabilities only in numbers e.g. Pakistan’s public debt has touched the dangerous level of 80% of GDP. Of course, numbers are important, but more vital is discussion on all aspects of debt-slavery—a new form of subjugation that needs to be exposed and countered through self-reliance by exploiting our indigenous natural and human resources.

The fundamental question to be asked and debated is: why in the name of people have our elites have been mindlessly and ruthlessly borrowing money and paying monstrous amounts in debt servicing. In 2023-24, it will be more than four times (Rs. 7303 billion) the amount allocated (Rs. 1804 billion) for defence!

Economic subjugation creates helplessness and complete submission. Resistance, on the contrary, kindles the hope for liberation—regaining of dignity, self-respect and equality being its main goals. Unfortunately, in the case of India and Pakistan, as in many other erstwhile colonies, the subjugators after end of colonial era regained control indirectly through a band of sycophants and cronies, who in the name of self-rule started exploiting their own people.

The era of neocolonialism was followed by late neocolonialism, under which political cronies serve foreign masters and business interests are looked after by representatives of big multi-national companies. This is the tragedy of most of the post-colonial states, including Pakistan, as masterly elaborated by Zulfikar Ali Bhutto in his masterpiece, Myth of Independence.

The role of the political elite in the post-independent “security state” of Pakistan has been shamelessly anti-people.

Post-colonial political and economic vested interests operate through allies in politics and local gumashtas (agents) in businesses. Pakistan is a suitable case-study of this phenomenon. After independence in 1947, the country was economically and politically subjugated. From day one the rulers vowed allegiance to the United States and did not support the nations fighting with colonialism and rising imperialism, for example, near home, China under the dynamic leadership of Mao Zedong.

The role of the political elite in the post-independent “security state” of Pakistan has been shamelessly anti-people. Calling themselves “leaders”, they have been serving neo-colonialists/imperialists with great zeal—see work of Hassan N. Gardezi, Neocolonial Alliances and Crisis of Pakistan.

The unholy alliance of feudal-legal-military-collegium in the case of Pakistan has been dominating politics and economics, under military or civilian rules alike. Unfortunately, from 1949 to 2023, this is the sad story of Pakistan and nobody is ready to dismantle these elitist structures that have pushed Pakistan to a terrible state of debt enslavement and political subjugation.

According to a Press report, the PDM government added “a net Rs. 7.2 trillion to the debt pile in only the first seven months of this [2022-23] fiscal year—an average of Rs. 34 billion per day. The federal government’s debt increased to nearly Rs. 55 trillion as of January 31, 2023—a surge of Rs. 7.2 trillion from July 2022 to January 2023, according to data released by the State Bank of Pakistan (SBP). In the fiscal year ending on June 30, 2022, there was an increase of Rs. 9.4 trillion in public debt, a sum of Rs. 3.8 trillion, or 40.3%, caused by currency devaluation, according to the Debt Policy Statement 2023 released by the Ministry of Finance, the report added.

The PDM government blames the coalition government of Pakistan Tehreek-i-Insaf (PTI) for monstrous increase in national debt. It is true but they have even bypassed the era of PTI in accumulating debt per day as evident from above figures.

It was reported that “the central government’s debt increased at a double-digit pace to Rs. 32.1 trillion by the end of November [2019], an addition of a whopping Rs. 5.7 trillion in just one year, as the Pakistan Tehreek-e-Insaf (PTI) government failed to adequately enhance revenues to meet expenditures.”

Another development on expenditure front that went unnoticed was reported on December 30, 2019, when the PTI government “approved a supplementary budget of Rs. 11.7 billion to pay for the military’s allowances and allowed duty-free import of cotton to meet local requirements”.

The perpetual disappointment with efforts to enhance revenues—both tax and non-tax—was discussed in detail in many previous columns as well as unprecedented rise in wasteful expenditure was specifically highlighted.

Are our economic managers, proud and much appreciated team of Premier Shehbaz Sharif, thinking out of box to come out of ‘debt prison’? The answer is big NO. The wizards sitting in Ministry of Finance (MoF) might have read ‘Greek Saga Ends With the Closing of IMF’s Office in Athens’, published on January 8, 2020 by Bloomberg. Are they considering the same ways and means discussed therein to reduce debt burden, saying goodbye to the International Monetary Fund (IMF) and becoming self-reliant through a well-thought-for plan, from structural reforms in all areas to import substitution to export-led growth, from reducing wasteful expenses to utilizing untapped resources, from imparting technical know-how to boost SME sector etc., that was discussed in 2013. The answer is obviously no!

Have the fourth-time Finance Minster, Muhammad Ishaq Dar and his team at MoF, studied the paper Economy of Debt: Alternatives to Austerity and Neoliberalism in Pakistan by Ammar Rashid, M. Nawfal Saleemi and Aasim Sajjad Akhtar, on which PIDE held a seminar on January 9, 2019. The answer appears to be even a bigger no!

The logic was simple that we were borrowing to pay off old liabilities! But the question remained: where was the debt retirement plan or strategy of PTI that it used to propagate with much pomp and pride before coming to power?

It is an incontrovertible fact that the most dreadful aspect of the five-year term (2013-18) of Pakistan Muslims League (Nawaz), PML-N, under Ishaq Dar et al was leaving behind a horrible public debt of Rs. 29.9 trillion as on August 15, 2018. SBP’s data showed that from 2013-18 total debt and liabilities increased from Rs. 13.5 trillion or 82.8%—unprecedented in the economic history of Pakistan. But later the PTI government broke this record even its first year—the logic was simple that we were borrowing to pay off old liabilities! But the question remained: where was the debt retirement plan or strategy of PTI that it used to propagate with much pomp and pride before coming to power?

Pushing Pakistan to horrific debt-enslavement on the part of PML-N was the worst one could expect from any responsible government. It was in utter violation of section 3(b) of the Fiscal Responsibility and Public Debt Limitation Act, 2005 [“the Act] that says: “beginning from the financial year 2016-17, the total public debt shall be reduced to sixty percent of the estimated gross domestic product.” Instead of reducing or containing public debt at 60% of GDP, the government of PMLN increased it by 27%. The economic wizard Ishaq Dar acted callously and another self-acclaimed development expert, Ahsan Iqbal, heading Planning & Development Ministry had been claiming to make Pakistan an Asian Tiger by 2025 and a member of the G20 by 2020?

During the decade of democracy from 2008 to 2018, the Opposition parties also showed complete apathy as none of them raised a voice in Parliament or in public gatherings on the issue of blatant violation of Fiscal Responsibility and Public Debt Limitation Act, 2005. None of the Opposition parties announced a shadow cabinet to prepare and make public white paper on the issue. It was duty of Opposition, which was “friendly”! However, the PTI also failed to create public awareness about the deadly consequences of economic policies of PML-N, unveil their own plans/strategies to meet the requirements mentioned in section 3(c)/(d) of the Fiscal Responsibility and Public Debt Limitation Act, 2005. When in power from August 18, 2018 to April 9, 2022, the PTI acted even worse than PML-N in accumulating the debt stock.

The Parliament of Pakistan as a whole never addressed the issue of gross violation of the Fiscal Responsibility and Public Debt Limitation Act, 2005. It is worth mentioning that on May 14, 2018, the then un-elected Finance Minister, Miftah Ismail, presented a record sanction for borrowing of Rs. 22 trillion in the coming fiscal year for retiring domestic and foreign debts and for debt servicing—details were available in a report titled, To servicing maturing debt, Pakistan to borrow Rs. 22 trillion in 2018-19. The PTI could not take a plea that it was caught unawares!!

Of course, the start of term (2018-23) by the coalition government of PTI was with exceptional debt burden, but its subjugation before the foreign lenders like IMF to further push the nation into debt quagmire was inexcusable when the claims were to get rid of it.

It is an undeniable fact that economic managers, during the military and civilian rules alike, have been borrowing heedlessly and wasting the funds collected as taxes or otherwise. What made the situation more painful was abuse of funds—wasted on huge tax-free perquisites and benefits to the privileged classes and not for economic uplift of the country. This state of affairs is the direct outcome of the policies of successive governments, giving a free hand to tax evaders and plunderers of national wealth.

The real challenge for the entire nation and those who matter in the Land of the Pure is how to break away from the debt-prison. The key to debt retirement is obviously export-driven growth, drastic reduction of unproductive and wasteful expenditure, utilization of State land, like palatial bungalows in Government Officers Residences (GORs) and cantonments etc, for commercial purpose by giving them on lease through public auction, and collection of taxes fairly and justly, but firmly, without any favour or fear. The real tax potential is Rs. 16 trillion at the federal level alone. For achieving these goals no concrete plans based on pragmatic and sound research were available with any regime since 2003, including the PTI and PDM is no exception!

So far, there is only a desire on the part of PDM to revive the economy, but how this is to be done is still the missing link. From rhetoric to reality will be the real challenge in the coming days for the new government if elections take place by October 12, 2023 under the mandate of the supreme law of the land—the Constitution of Islamic Republic of Pakistan. The outrageous debt burden and huge fiscal and current account deficits are symptoms of an ailing economy. The symptoms will keep on recurring unless the causes for illness are diagnosed and cured. The removal of causes of illness (elitist economic structure and crony capitalism) is a specialized job for which no preparation has yet been made by any political party in Pakistan.

The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE)