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High debt-to-GDP ratio

High debt-to-GDP ratio

According to the Ministry of Finance, the public debt-to-gross domestic product ratio is likely to reach 70.1 percent during the current fiscal year ending in June, exposing the failure of the PML-N government to manage the administrative affairs. The high debt-to-GDP ratio violates the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005 and as it is 10.1 percentage point higher than the limit set by parliament and 20 percentage points higher than sustainable levels for developing countries. The total public debt will reach Rs 24 trillion by the end of June 2018, as the government recorded miserable performance in almost all the sectors of the economy. According to experts, rising fiscal risks, narrow tax base, failure of the industrial sector to produce export surplus, inadequate foreign direct investment and unabated acceptance of loans from international donor agencies have marred the overall shape of the economy. Unfortunately, borrowing from every foreign source at high markup rate remained the most preferred choice of the government and integral part of the national finance policy. The former finance minister had always been thumping his chest that the country has achieved the macroeconomic stability but it was nothing more than eyewash.

The present volume of loans is more than the desired level. The erstwhile finance minister, presenting his last budget, had committed to bring down the debt ratio to 61.4 of the GDP till the end of fiscal year 2017-18. The ratio was 69.7 percent of the GDP, one of the highest during the fiscal year 2003-4, but it started coming down during Musharraf’s regime. However, it increased with restoration of democracy in 2008-9. The debt-to-GDP ratio was 64 percent in 2013 when the PML-N took over the reign of the government and it has been on the rise since then. It is unfortunate that no policy or strategy has been devised by the PML-N to control the worsening debt situation. Instead, the party government kept the acquisition of loans as the core part of its economic policy. As a result, the country has failed in the areas of macroeconomic development and made no effort to start debt reduction management. The ratio was under 60 percent of the GDP during the final days of General Pervez Musharraf. It is yet to be seen how the next government manages the troubles left by the present setup.