The Way Ahead
Pakistan’s future depends on sound planning and well-thought-out development which must be adhered to by all governments.
In Pakistan, the ongoing inflation is due to its heavy external debt of 128 billion US dollars (USD) up to December 2021 as per CEIC, with no capacity to pay back about 12 to 14 billion USD loan instalments per year, as Pakistan does not have sufficient foreign exchange reserves. And, to pay back loans, Pakistan has reached a stage, where it has to get further loans from the IMF and other foreign donors. Now, let us have a look at the position of Pakistan’s total foreign borrowing accumulated in the last 49 years (1972 to 2021), after the separation of its eastern wing.
The PPP led governments governed the country for 20 years for four terms, with Zulfiqar Ali Bhutto, Benazir Bhutto, and others as the Prime Ministers (PMs) and got a total loan of 32 billion USD. Gen Zia and Gen. Musharraf led governments ruled the country for 18 years and got a total loan of 17 billion USD. The PML (N) /Nawaz led governments ruled the country for 11 years for three terms, with Nawaz Sharif being the PM three times, and got a total loan of 44 billion USD, thus totalling the loan accumulated by these three types of governments to 93 billion USD up to May 2018.
When the Imran Khan-led PTI won the elections and formed the government in August 2018, it inherited an accumulated foreign loan of 93 billion US dollars. In May 2018, as per the Pakistan Bureau of Statistics, when PML (N) left office, Pakistan’s foreign exchange reserves in the State Bank were only 10 billion US dollars, imports were 56 billion US dollars, and exports were just 18 billion USD and a negative balance of trade of 38 billion US dollars. The budget deficit was 8.8 percent of the GDP.
In light of this situation, to pay back loan instalments of outstanding 93 billion USD loan at the rate of 11 billion USD per year, and to run the country, in August 2018, the Imran government also resorted to borrowing from the IMF and friendly countries. Due to the shaky economic situation at that time, and lengthy negotiations with the IMF, the market panicked and the Pakistani rupee was devalued while inflation also started rising, which was also later also rose due to Corona virus and Russia-Ukraine war.
The Imran Khan government got about 35 billion USD external debt in its 3 and a half year rule and paid about 33 billion USD loan instalments in three years. The total loans of Pakistan swelled from 93 billion USD to 128 billion USD in December 2021. This addition of 35 billion USD loan by the Imran government was therefore the result of already accumulated loan of 93 billion USD, out of which 76 billion USD loan had been borrowed by the PML (N) and the PPP governments and 17 billion USD by the military-led governments.
Then in April 2022, when the no-confidence motion succeeded against the PTI government and the PDM led by Shahbaz Sharif formed the government, the position of the economy was confirmed by the Survey of Pakistan Report 2021. The PTI government had achieved 6 percent annual growth, the total annual exports were 28 billion USD, foreign exchange reserves by December 2021, were 17 billion USD, and annual tax collection was equal to Rs 6100 billion. This state of economy indicated that Shaukat Tareen, the previous Finance Minister, was handling the economy well, as he was also keeping the prices under control by resisting the IMF demands.
The writer is a former research fellow of IPRI and Senior Research Fellow of SVI Islamabad.