Pakistan's public debt ratio has hit highest level of last 15 years, raising alarm bells for policymakers

Pakistan's public debt ratio has hit highest level of last 15 years, raising alarm bells for policymakers

*ISLAMABAD: *Pakistan’s public debt ratio has jumped to a 15-year high of 70.1% by the end of PML-N government’s tenure, exposing the country to many risks and giving less room for human development spending.

The Ministry of Finance finally acknowledged before the federal cabinet on Tuesday that the public debt-to-gross domestic product (GDP) ratio was estimated to peak at 70.1% by the end of fiscal year 2017-18 in June.

The high ratio violates the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005.

Finance Secretary Arif Ahmad Khan gave a briefing on broader contours of the economy and the budget including the debt situation. In absolute terms, the public debt, which is a direct obligation of the finance ministry, will be Rs24 trillion by the end of June 2018.

The 70.1% debt-to-GDP ratio was 10.1 percentage points higher than the limit set by parliament and 20 percentage points higher than sustainable levels for developing countries like Pakistan.

This is the result of an expansionary fiscal policy, narrow tax base, failure to enhance exports and attract adequate foreign direct investment. Even Prime Minister Shahid Khaqan Abbasi had to say in the cabinet meeting that loans were not an alternative to sustained revenue and income streams.

However, borrowing has remained the most preferred choice for the PML-N during its five-year tenure that is ending in around one and a half month.

The 70.1% ratio was 8.7 percentage points or roughly Rs2.9-trillion higher than the level that former finance minister Ishaq Dar had vowed to achieve by June 2018. While presenting his last budget, Dar had committed to lowering the debt ratio to 61.4% by June 2018.

The 70.1% ratio had been the highest since fiscal year 2003-04 when it stood at 69.7%. Since then, the ratio had been on the wane, but it started increasing again in 2008-09. When the PML-N government came to power in 2013, the debt-to-GDP ratio was 64%, according to a central bank report.