Grid Pin, Opinions

Who is responsible for Pakistan Debt Trap?

By Uzair Younus on Twitter

PM Imran Khan and PTI leaders have been railing against the PML-N for leaving Pakistan in a debt-trap. But are they telling the truth? I looked at the data, and my conclusion is that the PML-N has left Pakistan in a debt-trap, and its borrowing policy has been disastrous.

Let’s start with the overall picture: in FY13, Total Debt & Liabilities stood at Rs16,339, which was 72.7% of GDP. This increased by a whopping 82.8% in five years to Rs29,861 to 86.8% of GDP in FY18.

Government domestic debt during went from Rs9,521 to Rs.16,415, and government external debt from Rs4,311 to Rs7,795 from FY13 to FY18. The total debt of Public Sector Enterprises (PSEs) ballooned from Rs521bn to Rs1,393bn during this same period, and the domestic portion of this.

Debt more than doubled as a percentage of GDP, going from 1.4% of GDP in FY13 to 3.1% of GDP in FY18. In its last year, the government mostly relied in external borrowing, with the majority of these loans “contracted on floating interest rates” according to the SBP.

The negative impact of this is already being seen due to “upward trend in LIBOR” according to the SBP. What’s even worse is that the PML-N relied on short-term borrowing to meet its financing needs, increasing “exposure to refinancing and interest rate risk.”

They also borrowed heavily from commercial lenders at “higher rates” and “shorter tenors” leading the average maturity to decline from 21.1 years in FY10 to 10.9 years in FY18. All of this means that in addition to owing record sums of money, Pakistan is exposed to refinancing and interest rate risks, and as global interest rates rise due to a tighter monetary policy of the US Fed, these risks will mount even further. All in all, the analysis of debt figures shows that the PML-N’s debt policy was woeful and has brought Pakistan on the brink!

Data I use comes from the latest SBP Annual Report, and the relevant section can be found here. I am also sharing some screenshots of tables for reference –

Uzair Younus (@UzairYounus)