Federal government external debt is only 20-21 percent of our GDP. Pakistan now has very modest exposure to debt compared to what it had in the past, so there is not much to worry over. Some people say the current government has borrowed 17 billion dollars since coming into power.
If we borrowed 17 billion and out of which 10 billion dollars paid off old debts – why are we worried? More importantly, if we look at how much the economy is growing, we don’t have to worry about the debt to GDP ratio. Talk shows on television have people exaggerating the situation and making senseless arguments about the government mortgaging the country.
The government recently went to the market and they received substantial funds at lower rates than before. This shows that the market is not worried about Pakistan and trusts it to repay, which if it were a poor risk no-one would have given money.
This is far from reality, I can tell you that our overall debt to GDP ratio at most would be 65 to 66 percent of GDP, and that too because it went out of line in the last two years. Furthermore, if we take account of government deposits kept at banks, then as far as net debt is concerned we are standing nearly where we were when this government took its office.
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For risk indicators, we only need to look at the short-term debt – that is one year and less debt – because of rollover and resetting concerns – but, this debt has significantly dropped over the past couple of years. The ratio of debt to share of forex has also been falling for short-term debt. The government recently went to the market and they received substantial funds at lower rates than before.
This shows that the market is not worried about Pakistan and trusts it to repay, which if it were a poor risk no-one would have given money. I am not worried about default risk, least of all because the level of debt burden is becoming unbearable, however, it is a concern that the FX reserves are declining and the government is using the FX reserves to pay back debt which is not an efficient use of debt.
Dr. Waqar Masood Khan has served as Federal Secretary for the Finance ministry. He has also been the Special Secretary to the Prime Minister, Secretary Finance Division, Secretary Economic Affairs Division, Secretary Petroleum & Natural Resources, and Secretary Textile Industry. He has served on the Boards of national and international institutions including National Bank of Pakistan, Pakistan International Airlines, PTCL, Islamic Development Bank, and Pak-Oman Investment Company. He has done Ph.D. in Economics and M.A. in Political Economy from Boston University Massachusetts, USA and has done M.A. in Economics and L.L.B. from University of Karachi.