“Fiscal Policy and Debt Management”

Outline of the Presentation

♦ What is Fiscal Policy
♦ Issues in Resources Mobilization
♦ Trends in Revenue
♦ Issues in Expenditure Management
♦ Trends in Expenditure
̶ Quality of Expenditure
♦ Trends in Fiscal Deficit
♦ Financing of Fiscal Deficit
♦ What is Debt
♦ Is Debt Creation Bad?
♦ Trends in Debt
♦ FRDL Act 2005
♦ Future Outlook
♦ Concluding Remarks
1
 Stabilization Policy
♦ What is stabilization Policy
– Using Monetary and /or Fiscal Policy to stabilize economy
– When a country faces serious disequilibrium created by either exogenous
shocks or poor macroeconomic management or both, stabilization policy
becomes necessary to restore economic stability

♦ What is Fiscal Policy

– Policies leading to resource mobilization through taxation
– Policies leading to expenditure management

♦ Resource Mobilization
– How should we mobilize resources?
− Through an efficient tax system
− But what is an efficient tax system
2
♦ An Efficient tax system is one which is capable to finance the
necessary level of public spending in a most efficient, fair and
equitable manner
– An efficient tax system should raise enough revenue to finance essential
expenditures without recourse to excessive borrowing from within and
outside the country in an equitable manner

♦ Issues in Resource Mobilization

– In Pakistan, domestic resource mobilization has remained weak due to the
inherent weaknesses in the tax system and tax administration

3
♦ Why has Pakistan’s Tax efforts remained stagnant over the years?
♦ Pakistan Tax System Suffers from Several Weaknesses
− Narrow and Punctured tax base
− Narrow because of a number of exemptions/concessions. Few sectors
pay taxes
− Punctured because of tax evasion
♦ High Tax Rates
– Tax Rates are pitched at high levels (e.g; sales tax rates range from
17% to 50%) which created disincentives to pay taxes.
♦ Multiplicity of Taxes
– Individual firm facing numerous types of taxes
– Overdependence on indirect taxes (on average 62% of total taxes). If
withholding tax, which are indirect in nature and effects, are excluded
from direct taxes, the share of indirect taxes remains as high as 80
percent of total taxes

4
– Overdependence on Trade Taxes (roughly 40 percent of total taxes)
– Tax System is complex and tedious, along with high rates, have bred
corruption and encouraged evasion
– Non-availability of reliable statistics from the businesses made it
difficult for tax administration to assess the potential taxes to be
collected
– Structure of the economy itself has made it difficult to impose and
collect taxes.
• Large share of agriculture in output and employment
• Low share of wages in total income, large informal sector activities
• Low literacy rate and human capital made it difficult to develop a
good tax administration
• No accountability in tax administration
− Economic and Political powers are concentrated to those who either
do not pay taxes or pay much less than what they should have been
paying.

5
♦ Consequences
– Low and stagnant tax-to-GDP ratio
– Low tax elasticity and tax buoyancy
– Forced the government to change the definition of tax by including
cess/surcharges/levy. For example, since 2013-14, we have added Gas
Infrastructure Development Cess (GIDC), Natural Gas Development
Surcharge (NGDS) and Petroleum Levy as taxes to show higher tax-to-
GDP Ratio. In 2014-15, we added Rs. 301 billion in taxes.
– It has also forced the government to rely heavily on non-tax revenue
which increased from Rs. 443 billion in 2011-12 to Rs. 941 billion in
2013-14. it was Rs. 838 billion in 2014-15
♦ Non – Tax Revenue Include:
– SBP Profit
– Coalition Support Fund (CSF)

6
 Table 1: Trends in Revenue (as % of GDP)
Years (Averages) Total Revenue Total Tax Revenue Non – Tax Revenue
1990s 13.9 11.1 2.8
2001-07 13.9 10.5 3.4
2008-15 13.8 10.3 3.5
Source: Ministry of Finance, Government of Pakistan

7
♦ Expenditure Policy
– Two types of Expenditure
• Current Expenditure
– Interest Payments
– Defense and Security – Related
– Running Civil Administration
– Subsidies
– Development Expenditure

8
♦ The level, financing, patterns, and effectiveness of expenditure
greatly influence the level of economic activity, employment,
poverty and income distribution
♦ Pakistan’s fiscal challenges of the 1990s and of 2008-15 were largely
the result of expenditure growing at a much faster pace than
resource mobilization
♦ Why Expenditure grew so fast
− Premature Liberalization of Interest Rates in early 1989
− Poor governance and lack of accountability
− Prestige Projects(Larkana, Gujrat, Multan, Lahore packages)
− Ribbon cutting culture
− Losses of Public Sector Enterprises
− Subsidies
− Power Sector

9
 Table 2: Trends in Expenditure (as % of GDP)
Years (Averages) Total Expenditure Current Expenditure Development
Expenditure
1990s 20.0 16.1 3.9
2001-07 17.7 15.0 3.1
2008-15 20.5 16.9 3.4

10
 Table 3: Trends in Current Expenditure (as % of GDP)
Years (Averages) Current Defense Interest Payments Subsidies
Expenditure Expenditure
1990s 16.1 4.7 5.2 0.7
2001-07 15.0 3.2 4.0 0.8
2008-15 16.9 2.5 4.5 2.1

11
 Trends in Defense Spending
Defence Spending Defence Spending Defence Spending Defence
(Billion Rs) (Billion Rs)* (Billion $) Spending
Years
(Billion $)**
2000-01 131 131 2.24 2.24
2001-02 149 141 2.43 2.36
2002-03 160 150 2.73 2.61
2003-04 185 166 3.21 3.08
2004-05 212 174 3.57 3.26
2005-06 241 183 4.03 3.55
2006-07 250 176 4.12 3.52
2007-08 277 174 4.43 3.68
2008-09 330 172 4.20 3.36
2009-10 375 175 4.47 3.59
2010-11 451 185 5.27 4.16
2011-12 507 187 5.68 4.12
2012-13 541 186 5.59 4.04
2013-14 630 199 6.03 4.33
Source: Pakistan Economic Survey 2013-14, 2012-13 and 2006-07
* at constant price of 2000-01
** at constant price of 2000 12
Trends in Defense Spending

13
 Barden of Defense Budget
Years Defence Spending Per Capita Defense
as % of GDP as % of Budget Spending ($)*
2000-01 3.2 18.3 16
2001-02 3.4 18.1 16.5
2002-03 3.3 17.8 17.8
2003-04 3.3 19.7 20.6
2004-05 3.3 19.0 21.4
2005-06 2.9 17.2 22.8
2006-07 2.7 13.9 22.3
2007-08 2.6 12.2 22.3
2008-09 2.5 13.0 20.0
2009-10 2.5 12.5 20.9
2010-11 2.5 13.1 23.8
2011-12 2.5 12.9 23.0
2012-13 2.4 11.2 22.1
2013-14 2.5 12.3 23.3
2014-15 2.5 12.7 23.0
Source: Pakistan Economic Survey 2006-0714 and 2013-14, * at const. price of 2000
Barden of Defense Budget

15
 Bulk of Pakistan’s expenditure is recurring (current) in
nature (80-85%)
 Within the recurring expenditure, interest payments (27%)
and defense spending (15%) account for 42 percent.
 Development expenditure appears to have served as a
residual budgetary item and the burden of fiscal adjustment
has always fallen on development expenditure
 Deterioration in physical infrastructure such as energy,
roads, transport; and human capital such as education,
health and skill developments are the obvious outcome of
neglecting development expenditure
 Quality of Expenditure
− It is not the expenditure perse but the quality of
expenditure matters for economic development

16
 Table 4: Shares of Budgetary Allocation in Total Expenditure (%)
Items 1990s I 1990s II 2001-05 2006-10 2010-11 2011-12 2012- 2013- 201
13 14 4-15
Total Expenditure 100 100 100 100 100 100 100 100 100
- Current Expenditure 76.8 84.3 86.6 81.7 84.5 82.7 77.7 82.0 84.0

- Development 22.3 18.0 16.0

23.2 15.7 13.4 18.3 15.5 17.3
Expenditure
- Defense Expenditure 24.9 22.1 18.5 14.4 12.6 11.7 11.2 12.4 12.7

- Interest Payments 21.7 30.2 25.0 20.2 19.6 20.5 20.6 22.8 24.0

- Subsidies 3.5 3.0 4.0 8.7 13.8 12.9 6.3 6.6 4.9
- Civil Administration 1.8 3.3 7.0 6.5 6.2 5.2

Inclusive Expenditure 20.7 18.3 20.2 20.1 17.6 17.0

(A&B)
- Education 10.0 9.8 10.3 10.4 8.6 9.0
- Health 2.9 3.3 3.3 2.9 3.0 2.8
- Social Safety Nets 0.6 0.7 2.0 2.2 2.0 1.9

A. Social Sector Spending 13.5 13.8 15.6 15.5 13.6 13.7

B. Infrastructure 7.2 4.5 4.6 17

4.6 4.0 3.3
 Table 5: Social Sector and Infrastructure Expenditures (as % of Total Expd)

Items 1990s 2001-07 2008-12

Education 10 11 9

Health 3 3 3

Social Safety Nets 0.5 1.2 3

Social Sector 13.5 15.2 15.0

Infrastructure 5.9 4.7 4.1

Social Sector Plus 19.4 19.9 19.1

Infrastructure

18
 Table 6: Social Sector and Infrastructure Expenditure (as % of
GDP)
Items 1990s 2001-07 2008-12

Education 2.0 1.9 1.9

Health 0.6 0.6 0.6

Social Safety Nets 0.1 0.3 0.5

Social Sector 2.7 2.8 3.0

Infrastructure 1.2 0.8 0.8

Social Sector Plus Infrastructure 3.9 3.6 3.8

19
  What is Fiscal Deficit?
− Fiscal Deficit = R-E if R<E
− Fiscal Surplus = R-E if R>E

Table 7: Trends In Fiscal Deficit (as % of GDP)

Years (Averages) Fiscal Deficit Revenue Public Debt

Deficit

1990s 6.2 2.2 76.5

2001-07 3.7 1.1 68.3

2008-15 6.8 (7.6) 3.5 60.0

Note: Figure in Parenthesis is the estimate of independent economists
20
 Table 7: Trends in Fiscal Deficit (As % of GDP)
Years Total Revenue Total Expd Current Expd Fiscal Revenue
Deficit Balance
1990-91 13.3 21.2 15.9 -7.9 -2.6
1992 14.8 22.0 15.7 -7.2 -0.9
1993 14.8 21.5 16.8 -6.7 -2.0
1994 14.2 19.7 15.7 -5.5 -1.5
1995 13.7 19.3 15.3 -5.6 -1.6
1996 14.5 21.1 16.7 -6.5 -2.2
1997 13.4 19.0 16.0 -5.6 -2.6
1998 13.1 19.5 16.2 -6.4 -3.1
1999 13.4 18.4 15.9 -5.0 -2.5
2000 13.4 18.8 16.6 -5.4 -3.2
2001 13.1 17.4 15.7 -4.3 -2.6
2002 14.0 18.3 15.7 -4.3 -1.7
2003 14.8 18.5 16.5 -3.8 -1.7
2004 14.1 16.4 13.7 -2.3 0.4
2005 13.8 17.2 14.5 -3.3 -0.7
Continue…………
2006 12.7 16.5 21
13.1 -3.7 -0.4
2007 15.0 19.3 15.9 -4.4 -0.9

2008 14.6 22.2 18.1 -7.6 -3.5

2009 14.0 19.2 15.9 -5.2 -1.9

2010 14.0 20.2 16.7 -6.4 -2.7

2011 12.4 19.5 16.5 -7.0 -4.1

2012 12.8 21.6 17.9 -8.9 -5.1

2013 13.3 21.8 16.8 -8.5 -3.5

2014 14.5 20.2 16.4 -5.7* -1.9

2015 14.4 19.8 16.6 -5.4* -2.2

* Definition of revenue, expenditure and budget deficit are not consistent with
earlier periods. Consistent budget deficit for the years 2013-14 and 2014-15,
according to independent economists, are respectively 8.6 percent and 8.4 percent
of GDP.

22
♦ Financing Fiscal Deficit

Financing

External Domestic

Non-
Banks
Bank

Privatization
Commercial
SBP
Banks

23
 Table 8: Financing Fiscal Deficit (as % of fiscal deficit)

Years averages Domestic

Banks Non-Bank Privatization Total

External Proceeds Domestic

1990s 28.5 29.8 37.6 2.0 69.4

2001-07 44.9 18.6 31.5 4.9 55.1
2008-15 13.0 55.0 32.0 - 87.0
Source: Pakistan Economic Survey Various Issues

24
FISCAL RESPONSIBILITY AND DEBT LIMITATION ACT
2005
 Five key elements of the Act 2005
– Public Debt should not be more than 60% of GDP by 2012-13
– Public Debt should be reduced 2.5 percentage points of GDP
each year
– Revenue Deficit be eliminated by end-June 2008 and maintain
surplus thereafter.
– Government will not provide guarantee to the borrowing of the
PSEs by more than 2.0 percentage points of GDP in any given
year.
– Expenditure on Social Sector and Poverty related programs will
not be less than 4.5 percent of GDP in each year
 Expenditure on health and education should be doubled in
percentage of GDP by 2012-13
25
WHAT IS DEBT ?
• When a government spends more than the revenue it
collects, it borrows from various sources to finance the
budget deficit. The accumulation of past borrowing from
domestic sources is the domestic debt.
• Similarly when a country imports more goods and services
than it exports, it borrows from various sources to finance
current account deficit. It also borrow externally for debt
repayment and to maintain a certain level of FE reserves.
The accumulation of all such past borrowing is the external
debt.

26
TYPES OF DEBT

• There are two types of Debt

• Public Debt

• Rupee Component

• Dollar Component

• External Debt

27
IS DEBT CREATION BAD FOR THE ECONOMY?
• Borrowing domestically or abroad is a normal part of economic
activity.
• As long as the borrowers can earn a higher economic/social rate
of return than the cost of invested funds, creation of debt is not
a burden.
• Debt-servicing problems arise when the debt carrying capacity
of the country does not increase commensurate with the
increase in its debt servicing liabilities.
(The debt carrying capacity is defined as the ability of a country
to service its external liabilities within an orderly and stable
macroeconomic framework)
28 (Continue…)
IS DEBT CREATION BAD FOR THE ECONOMY?
• Short-term borrowing for longer-term projects can lead
to serious cash flow problems.
• Countries most often run into difficulties because the
borrowed funds are directed toward wasteful or low
economic return projects.

29
 WHAT CAUSES PUBLIC DEBT TO RISE?
Causes Consequences
Persistence of Large
Fiscal and CADs Major Source of
Macroeconomic
Instability
Sharp Depreciation
of Exchange Rate Rise
Poor Growth
in Performance

Decline in Non-Debt Public

Creating Inflow Rise in
 Grants and Unemployment and
 FDI External Debt Poverty
 Portfolio
 Privatization Loss of Financial
Proceed Sovereignty

External Borrowing to
Build Forex

30
PAKISTAN SUSTAINED A VERY LARGE BUDGET DEFICIT IN THE 1990S
AND DURING 2008-14
Overall fiscal deficit (% of GDP)

• Including earthquake related expenditure

* My calculation
Source: Ministry of Finance 31
CURRENT ACCOUNT DEFICIT GROWING (% OF GDP)
SHRANK, TURNED SURPLUS AND THEN STARTED
WIDENING
Current Account Deficit remained high in the 1990s despite low economic growth.

Source: SBP
32
PUBLIC DEBT MORE THAN TRIPLED IN THE LAST SEVEN
YEARS
Public Debt (Billion Rs)

33
 TRENDS IN EXTERNAL DEBT AND LIABILITIES

External Debt and Foreign Exchange Liabilities (Billion $)

34 Source: Ministry of Finance

PAKISTAN’S DEBT PROFILE SINCE INDEPENDENCE
Period External Debt & Public Debt (Billion Rs)
Liabilities (Million $)
1947-48 0.0 -
1949-50 0.0 -
1959-60 145.0 -
1969-70 2,959.0 -
1979-80 9,458.0 155.4
1989-90 19,207 801.2
1999-2000 36,563 3,018
2006-07 40,324 4,802
2009-10 61,567 8,911
2013-14 65,365 16,388
2014-15 65,183 17,819
Source: State Bank of Pakistan and Debt Office, Ministry of Finance
35
 CHANGES IN DEBT PROFILE
Period External Debt & Liabilities Public Debt (Billion) Rs)
(million $)

1948-60 1,45 -

1960-70 2,814 -

1970-80 6,499 155.4

1980-90 9,749 6,46

1990-2000 17,356 2,217

2000-2007 3761 1,796

2008-2014 24,859 13005

Note: Pakistan accumulated $42.215 billion (or 65%) external debt and liabilities in
the decade of the 1990s and in the last eight years. In other words , 2/3rd
accumulation of debt took place in 18 years and 1/3rd ($23.150 billion) and in the
remaining 49 years. 36
LOAN CONTRACTED BY PPP AND PML (N) GOVERNMENTS
DURING 2008-09 TO SEPTEMBER 2015-16
Year PPP PML (N)
Bilateral/ IMF Bilateral/ Multilateral IMF
Multilateral
FY2009 4,797.9
FY2010 4,564.7 7,400
FY2011 2,738.1
FY2012 4,018.1
FY2013 1,277.6
FY2014 14499 6,640
FY2015 3,633
FY2016 3891
Total 17,396.4 7,400 22,023 6,640

24,796 28663
37
 TABLE 1: TRENDS IN EXTERNAL DEBT AND LIABILITIES AND PUBLIC DEBT
Year External Debt & Liabilities Public Debt
Year Billion $ As Multiple of OLR Billion Rs As % of Revenue
1996-97 33.6 29.4 2037 530
1997-98 33.6 35.9 2338 544
1998-99 37.8 27.4 2946 628
1999-2000 36.6 36.7 3018 589
2000-01 35.8 21.2 3489 631
2001-02 35.6 8.2 3510 563
2002-03 34.8 3.6 3621 502
2003-04 34.7 3.3 3787 479
2004-05 35.4 3.6 4063 451
2005-06 37.2 3.4 4357 405
2006-07 40.3 2.8 4803 370
2007-08 46.2 5.3 6040 403
2008-09 52.3 5.5 7631 412
2009-10 61.6 4.7 8890 428
2010-11 66.4 4.2 10680 474
2011-12 65.5 6.0 12652 493
2012-13 60.9 10.1 14321 486
2013-14 65.4 7.2 16389 451
2014-15 65.2 4.8 17819 453

• Source: State Bank of Pakistan. 38

Note: OLR = Official Liquid Reserves * Projected Revenue
 DEBT SERVICING AS % AGE OF EXPORT
EARNINGS AND FOREX RESERVES
Year Debt Servicing
Billion $ As % of Exports As % of SBP Forex
reserves
2004-05 2.79 19.4 28.5
2005-06 2.82 17.1 26.2
2006-07 2.77 16.3 20.8
2007-08 3.03 15.9 35.3
2008-09 4.62 26.1 50.7
2009-10 4.54 23.5 35.0
2010-11 3.87 15.6 26.2
2011-12 4.42 18.7 40.9
2012-13 6.49 26.2 106.7
2013-14 7.10 28.4 78.0
2014-15 6.5 27.0 48.1
2015-16(E) 6.6 30.0 43.0
39
40
 SHARES OF DIFFERENT DEBT IN TOTAL DEBT
Million $)

Years MLT Debt Bilateral Debt Euro/Sukuk bond Others

1999-2000 13,914 13,067 1770 7812

(38.1%) (35.7%) (4.8%) (21.4%)

2006-07 20,165 13,693 2800 3666

(50.0%) (34.0%) (6.9%) (9.1%)

2010-11 35,461 17,927 1750 11,228

(53.4%) (27.0%) (2.6%) (16.9%)

2013-14 29,547 18,072 3840 13,906

(45.2%) (27.6%) (5.9%) (21.3%)

2014-15 28,883 17,137 4850 14,313

(44.3%) (26.3%) (7.4%) (22.0%)

* Figures in parentheses are shares of respective debt in total debt

41
SHARE OF DOMESTIC DEBT IN PUBLIC DEBT (%)
Years Share of Domestic Debt (%) of Public Debt
2004-05 53%
2005-06 53.3%
2006-07 54.2%
2007-08 54.1%
2008-09 50.5%
2009-10 52.3%
2010-11 56.3%
2011-12 60.4%
2012-13 66.9%
2013-14 68.3%
2014-15 70.3 %
42
 SHARE OF SHORT –TERM (< 1 YEAR) DEBT IN
DOMESTIC DEBT (PERCENT)

Years

2011-12 53.6

2012-13 54.3

2013-14 41.9

2014-15 37.6

Source: State Bank of Pakistan 43

 CHANGING SHARES OF DIFFERENT DEBT IN
TOTAL DOMESTIC DEBT (PERCENT)
Year Permanent Debt Floating Debt Unfunded Debt Total Domestic Debt
2001-02 23.9 31.4 44.6 100
2002-03 24.7 27.3 48.0 100
2003-04 28.3 27.0 44.7 100
2004-05 24.2 35.7 40.1 100
2005-06 22.2 40.6 37.1 100
2006-07 21.6 42.4 36.0 100
2007-08 18.8 50.0 31.2 100
2008-09 17.8 49.3 32.9 100
2009-10 17.1 51.5 31.3 100
2010-11 18.7 53.8 27.5 100
2011-12 22.2 54.2 23.5 100
2012-13 22.9 54.6 22.6 100
2013-14 36.7 42.2 31.1 100
2014-15 41.1 37.8 21.1 100
44
 ILL – PLANNED PIB AUCTION
 Successive governments issued Rs. 1.367 trillion worth of PIBs during
December 2000 to December 2013, that is, in Thirteen years.
 The present government issued Rs. 2.697 trillion worth of PIBs during
January 2014 to April 2015, that is in 16 Months only
 In other words, the present government issued more than double PIBs in 16
months as compared to what were issued in 13 years.
 Weighted average interest rates of PIBs issued in the last 16 months is
11.9%.
 Weighted average interest rate of T-Bills issued in the same 16 months is
9.65%.
 Interest rates differential is 2.26% with Rs. 2.7 trillion worth PIBs would cost
Rs. 61 billion additional interest payment.
 Recent decline in T-Bills rates at around 7% has widened interest rates
differential to 4.9%. With this differential and Rs. 2.7 trillion of PIBs additional
interest cost would be Rs. 132 billion per annum.
 By shifting from short to medium to long term papers Pakistan only gained 1
½ to 2 years at the cost of enormous interest payments.
45
 RISING DEBT BURDEN: FUTURE OUTLOOK

Year Total External Exit Debt Exports E.Debt/Export EDS as % of

Debt (Billion $) Servicing (Billion $) (%) Exports
(Billion $)

2013-14 65.4 7.1 25.1 262 28.4

2014-15 65.2 6.5 24.1 270 27.0

Forecast
2015-16 69.8 6.6 23.0 303.5 28.7
2016-17 77.2 7.3 23.7 325.7 30.8
2017-18 85.4 8.1 24.5 348.6 33.1
2018-19 95.5 9.1 25.5 374.5 35.7
2019-20 104.6 9.9 26.8 390.3 39.9
46
 EXTERNAL FINANCING REQUIREMENT (BILLION $)
Year Debt Current Account Total
Servicing Deficit

2015-16 6.6 1.7 8.3

2016-17 7.3 2.7 10.0

2017-18 8.1 5.5 13.6

2018-19 9.1 6.5 15.6

2019-20 9.9 8.5 18.4

47
 LIKELY FINANCIAL INFLOWS (BILLION $)
Year Traditional Chinese Foreign Total
Donors Financing Investment

2015-16 3.00 0.5 1.0 4.50

2016-17 3.25 3.0 1.5 7.75

2017-18 3.50 4.0 2.0 9.50

2018-19 3.75 4.5 2.5 10.75

2019-20 4.0 2.6 3.0 9.60

48
 FINANCING GAP (BILLION $)

Year Total Financing Likely Availability of Financing

Requirement External Financing Gap

2015-16 8.3 4.50 3.80

2016-17 10.0 7.75 2.25

2017-18 13.6 9.50 4.10

2018-19 15.6 10.75 4.85

2019-20 18.4 9.60 8.8

49
 CONCLUDING REMARKS
 Pakistan faces serious challenges of Resource Mobilization
̶ Weaknesses in tax system and tax administration are mainly responsible
̶ Lack of seriousness on the part of top political leadership in resource
mobilization is also responsible
̶ The current NFC Award is yet another factor responsible for poor resource
mobilization
̶ Do we Need a new tax administration the “Pakistan Revenue Authority (PRA)”?
 Reckless spending as well as poor quality of spending are challenges on
Expenditure side
̶ Resolution of PSEs and circular debt are essential
 Fiscal deficit has surged during 2008-15
̶ Budget deficit, on average, has been 7.5 percent of GDP
̶ This level of deficit is unsustainable given our poor record of revenue
mobilization
̶ Accounting tricks/Enron accounting has become order of the day to show lower
fiscal deficit
50
 On average, 87 percent of fiscal deficit has been financed through domestic
resources. Domestic Debt is relatively expensive, therefore, interest payment has
risen substantially during 2008-15.
 Fiscal Indiscipline during 2008-15 resulted in many fold increase in public debt.
Pakistan added Rs. 5000 billion in public debt during 1947 – 2007, but added Rs.
13000 billion in just 8 years (2008-15)
 Pakistan added $25 billion in external debt in the last 8 years. Added with $17
billion in the 1990s, we added $42 billion out of total external debt of $65 billion in
two periods (1990s and 2008-15) or 2/3rd of Pakistan’s external debt is added in
the 1990s and 2008-15
 We built foreign exchange reserves to $15 billion from $6 billion mostly through
expensive borrowing. Some body will have to repay these debts.
 Conservative estimates suggest that Pakistan’s external debt may reach $104.6
billion in the next five years. External debt servicing may increase to almost $10
billion in the next 5 years.
 Our total financing requirement may reach to $18.4 billion and with Likely inflows
during the same period ($9.6 billion) financing gap may jump to almost $ 9 billion.
 This is a serious development and a matter of national security issue.
51