Former Finance Minister Miftah Ismail has predicted a difficult few months ahead, starting with meeting $4.1 billion of debt servicing, in both amortisation and interest, even though foreign exchange reserves only stand at $4,4 billion. That could only be managed if China was to roll over $1 billion in government lending, and if $3.1 billion owed to Chinese banks was also rolled over. Dr Ismail did not mention that the plummeting export earnings and declining remittances made the problem worse. He also pointed out that domestic debt had become equally unmanageable, what with the provinces not increasing their low collections from agriculture, real estate and services. As a result, the provinces eat up Rs4.5 trillion out of the annual federal tax revenue of Rs 7.5 trillion. Even if one adds Rs1.5 trillion in non-tax revenue, Islamabad will be left with just Rs4.5 trillion over. Domestic debt servicing alone is touching Rs 6 trillion. Dr Ismail pithily described a debt trap: having to borrow to service debt. That means that all other expenditure, such as on civil administration and defence, will also be met by borrowing. This is not just unsustainable in the long-run, but difficulties are created in the short run because of the mounting interest, which is set to go into new territory because of the IMF’s advice on how to fight inflation, advice which has not worked so far.
Meanwhile, the government continues what seems to an interminable courtship of the IMF, because the resumption of its programme would allow it to continue borrowing from the international money market. Perhaps a symptom of the malady is that recourse to the IMF is not seen as a temporary emergency measure to help us out of a temporary difficulty, but as a permanent revenue stream. At the same time, Pakistan seems to expect a free lunch. It seems to expect the IMF to bail it out for purely economic reasons, and not to help the USA in meeting its foreign policy goals. It is no coincidence that it is China, the USA’s main opponent, to which Pakistan is looking for help. Former COAS Gen Qamar Javed Bajwa had said there had been a shift of focus from geopolitics to geoeconomics. Pakistan seems destined to remain in the debt trap if it follows the present policies.
