BusinessEconomy

Pakistan’s Debt Burden Reaches Rs64 Trillion, Each Citizen Owes Rs250,000

Pakistan is facing a severe debt crisis, as its internal and external debt burden has reached a record high of Rs64 trillion, according to the latest data released by the State Bank of Pakistan (SBP).

This means that every Pakistani citizen owes Rs250,000 in debt, which is more than the average annual income of most Pakistanis.

The SBP data shows that the federal government borrowed Rs2.218 trillion in August 2023 alone, increasing the local debt by 24% to Rs39.792 trillion.

The external debt also rose by 39% to Rs24.175 trillion, as the government had to repay its loans to international creditors and finance its imports.

The high debt burden has also increased the cost of debt servicing, which is the amount of money that the government pays in interest and principal on its loans.

The SBP data shows that the federal government spent Rs1.534 trillion on debt servicing in the first two months of the current fiscal year, which is 44% higher than the same period last year.

The rising debt burden and debt servicing costs have put immense pressure on the government’s budget and economy.

The government has been struggling to reduce its fiscal deficit, which is the difference between its revenues and expenditures.

The fiscal deficit was recorded at 8.1% of GDP in the last fiscal year, which was much higher than the target of 6.3%.

The government has been trying to implement an austerity plan to cut its expenditures and increase its revenues, but it has faced resistance from various sectors and opposition parties.

The government has also been seeking help from international lenders, such as the International Monetary Fund (IMF), the World Bank, and friendly countries, such as China and Saudi Arabia, to cope with its balance of payments crisis.

The balance of payments is the difference between a country’s foreign exchange earnings and payments.

Pakistan has been facing a chronic balance of payments crisis, as its imports have been much higher than its exports, resulting in a large trade deficit.

The trade deficit is the difference between a country’s exports and imports.

Pakistan’s trade deficit narrowed to $5.3 billion in the first quarter of the current fiscal year, a decrease of 42% compared to the same period last year.

This was mainly due to a significant decrease in imports, especially of oil and machinery, as the government imposed import restrictions and tariffs to save foreign exchange reserves.

However, Pakistan’s exports also declined by 4.5% in the same period, due to various factors, such as low demand in international markets, energy shortages, security issues, and lack of competitiveness.

Pakistan’s exports have been stagnant for many years, as the country has failed to diversify its export products and markets.

Pakistan mainly exports low-value-added products, such as textiles and rice, which face stiff competition from other countries.

Pakistan also relies heavily on a few markets for its exports, such as China, the United States, and the European Union, which makes it vulnerable to external shocks and fluctuations.

Pakistan needs to boost its exports by enhancing its productivity, quality, innovation, and market access.

This will help Pakistan generate more foreign exchange earnings, reduce its trade deficit and debt burden, and improve its economic growth and development.

Besides the debt and trade issues, Pakistan is also facing high inflation, which is the rate at which prices of goods and services increase over time.

Inflation erodes the purchasing power of money and affects the living standards of people.

Pakistan’s inflation rate rose to 31.4% year-on-year in September 2023 from 27.4% in August 2023.

This was the highest inflation rate in Pakistan since November 2022.

The main causes of high inflation in Pakistan are high fuel and energy prices, depreciation of rupee against dollar, supply shortages of food items, expansionary monetary policy, and fiscal indiscipline.

High inflation has adversely affected the poor and middle class segments of society, who spend a large proportion of their income on food and other necessities.

High inflation has also reduced the real income of workers and businesses, affecting their savings and investment decisions.

High inflation has also increased the cost of production for industries, making them less competitive in domestic and international markets.

Pakistan needs to control its inflation by adopting prudent monetary and fiscal policies, stabilizing its exchange rate, ensuring adequate supply of essential commodities, curbing corruption and hoarding activities, and providing relief measures to vulnerable groups.

Back to top button