Ayesha Saba

Pakistan's debt burden has been on a steady rise, with both domestic and external debts escalating to concerning levels. As the country grapples with the gigantic task of repayments and servicing costs, the government must prioritise capital formation and development projects for expanding GDP and, consequently, bolstering the capacity to repay debts. Hamid Haroon, a member of the Policy Advisory Board, Federation of Pakistan Chambers of Commerce and Industry (FPCCI), said Pakistan was facing a formidable debt crisis, leading to its classification as a "debt-stressed" nation. "The primary concern stems from the country's escalating debt levels, which now stand at a significant 80% of its GDP." He added that this accumulation of debt over the years had constrained the government's fiscal flexibility, limiting its capacity to invest in crucial sectors such as education, healthcare, infrastructure and technology.

"Despite repeated warnings from experts and international financial institutions, successive governments have failed to implement meaningful reforms to rein in borrowing and enhance revenue collection," he lamented. He said many advanced economies also had far greater percentages of debt. "The US had a ratio of 108% in 2019, and that of Japan was 234%, demonstrating that emerging countries were not the only ones with high debt levels." However, Haroon said that these countries had more established financial systems and access to deeper capital markets, allowing them to borrow significant sums over extended periods. "Additionally, developed economies typically have more robust institutional frameworks, including independent central banks and stable political systems, which enhance investor confidence and facilitate debt financing." He suggested that Pakistan must prioritise investment in sectors that drive productivity, innovation and inclusive growth.

"By channelling resources into infrastructure development, human capital enhancement, and technology adoption, Pakistan can lay the foundation for sustainable economic progress and mitigate the risks posed by its burgeoning debt burden." "Without addressing these underlying issues, the debt crisis will persist, jeopardising the country's future prosperity." The government has vowed to prioritise fiscal consolidation and debt management. The finance minister recently announced a series of austerity measures to reduce government expenditures and increase revenue mobilisation. However, experts caution that such measures alone may not be sufficient to address the root causes of Pakistan's debt crisis. According to SBP, Pakistan's total debt and liabilities now stand at Rs81.2 trillion, including Rs4.6 trillion in liabilities. The government accumulated debt at a rate of 27.2%, averaging Rs48 billion per day since December 2022.

Credit: INP-WealthPk