The Debt Increase In Last 10 Years [5 Reasons]

The Debt Increase In Last 10 Years [5 Reasons]

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The national debt increase in the last 10 years is cataclysmic.

Recently, PM khan set up a commission to evaluate the causes of debt growth. According to Khan, the national debt of Pakistan reached Rs 28,000 billion, and he wants to determine how come it grew too quickly.

The figure is a year old now. Guess what was the number by July 2019?

It crossed Rs 36,000 billion.

While the commission will take time to evaluate, why not try ourselves to follow the trend of the debt rise in the last 10 years.

So, let’s start.

The Debt Increase in last 10 Years

I took stats from the State bank of Pakistan’s official economic data.

Now, brace yourself and have a look at the table below.

Years Domestic Debt External Debt Total
2009 3,861 4,259      (56) 8,120
2010 4,651 5,262      (63) 9,913
2011 6,012 5,707      (67) 11,719
2012 7,638 6,196      (68) 13,834
2013 9,521 6,036      (67) 15,557
2014 10,907 6,449      (64) 17,356
2015 12,193 6,634      (66) 18,827
2016 13,626 7,747      (75) 21,373
2017 14,849 8,704      (83) 23,353
2018 16,416 10,952    (96) 27,368
2019 20,729 15,624    (109) 36,353

(The amounts are in Billion Rupees. The quantities in bracket are in USD)

Let’s analyze the figures now.

Domestic Debt Increase

Domestic debt includes government borrowing via banks, investment bonds, and saving schemes. I didn’t add local liabilities of public sector enterprises (PSE) in the figures.

The internal debt was Rs 3861 Billion in 2009. And it soared to Rs 20,729 Billion by July 2019.

Please note that the increasing debt pattern is steady up to 2017, and then there is a sudden rise in the last two years.

External Debt Increase

External debt includes debts and liabilities. It was Rs 4259 Billion in 2009 and reached Rs 15,624 Billion by July 2019.

The external debt didn’t increase much between 2012-2015 because oil prices dropped considerably in that period.

The oil import bill of Pakistan is around 13 billion USD, and it dropped substantially in the 2012-2015 period. The drop in the oil price reflected in the economy and the external debt didn’t increase much in these years.

However, we couldn’t reap the benefit of a low import bill, and the total debt in the same period went from Rs 13,834 Billion to Rs 18,827 Billion.

External Debt in terms of US Dollars

I also displayed the foreign debt in terms of US dollars (amount in brackets) to get a clear picture.

The dollar-rupee exchange rate has varied over the years, so it was impossible to determine a unif0rm rate of exchange.

So, I took the average exchange rate of a given tax year for the purpose.

For example, for the tax year 2019, the dollar rate of July 2018 was around Rs 124 and of June 2019 was Rs 163. Hence, the dollar rate for the tax year 2019 is Rs 143.5 (124+163)/2

Based on that, the external debt was USD 56 Billion in 2009, which crossed the 100 Billion mark first time in 2019, and it was standing at USD 109 Billion by July 2019.

Again, the external debt increased tremendously in the last two years, from USD 83 Billion in July 2017 to USD 109 Billion by July 2019.

5 Reasons for Debt Increase in the Last 10 Years

The debt commission will take time to determine the causes, but to me, it’s because of the following 5 reasons.

1. Diminishing Aid

The US aid to Pakistan remarkably dropped in this period. The decade before was the time of war on terror. We were part of a US-led coalition, and the incoming US aid was abundant under the Bush administration (2000-2008).

Many payable debts were also rescheduled.

This extra assistance declined under the Obama administration and that led to increased borrowing.

2. Money Laundering

Money laundering also caused the economy to suffer. On one end, the hard-earned dollars were coming, and on the other end, they were exported back illegally.

The craze of having a foreign property and lack of trust in the future of Pakistan were two significant causes of money laundering.

Pakistani investment in united Arab emirates is a clear example of it. Its estimated around 10 billion dollars and most of that money was transferred through illegal channels.

This immense capital flight, in terms of dollars, disturbed the economy and increased the burden of debt in the last 10 years.

3. Political Uses of Debt

Unfortunately, the governments in Pakistan tend to make policies keeping in mind the general elections which come every five years. This approach ceases the chances of a long term policy, which is the core of economic rebuilding.

The government invests money to please their voters but doesn’t prioritize where the money should go. Projects like the Metro bus and Orange train were initiated only to get political gains.

The Metro bus service of Lahore doesn’t generate any revenue. Instead, the government provides a subsidy to keep it running.

Peshawar Metro is the worst example. The cost of the project has crossed Rs 100 billion, and it’s not functional yet.

Bottom line, the excessive use of debt for political purposes led to an increase in the debt burden of Pakistan.

4. Political and Economic Uncertainty

The effect of political and economic uncertainty has shown up in the last 3 to 4 years. Look at the screenshot, you can observe that the amount of debt skyrocketed following the year 2015.

It was around 66 Billion dollars in 2015, followed by 75 Billion in 2016, and now it has reached a whopping 109 Billion USD.

Similarly, the total national debt has doubled in the last four years from Rs 18,827 to Rs 36,353.

5. Corruption

You may wonder why I kept the corruption last in the list.

Well, that’s for two reasons.

First, money laundering is also a form of corruption, and it’s second in the list.

Second, corruption is partially responsible for the debt increase and that’s also for two reasons.

First, we have never been a corruption-free country. We had the corruption issue even before the last decade. So how come a sudden increase in the debt was possible just because of corruption.

Second, if corruption was the prime cause of debt increase, we could have a declining trend in the last year or so when we have a new government in the office.

Instead, we observed a debt hike in last year at a remarkable pace.

So corruption is responsible for the increase in national debt, but at times, it’s over-exaggerated.

As the stats indicate the debt will keep on piling, and as per the staff-level report of IMF, the total external debt of Pakistan will reach at 130 Billion USD by the end of 2023, which means there will be a net increase of 35 billion USD under the current government.

Keep in mind, 130 Billion USD is just the external debt. We can’t figure out where the domestic debt will be standing by 2023, but you can guess it.

Conclusion

The national debt of Pakistan has tremendously increased over the last 10 years. PM Khan has formed a commission to determine the reasons for the debt increase. The debt figure that was Rs 28,000 billion in July 2018 has reached Rs 36,000 billion, and there is an increase of more than Rs 8000 billion in just a year.

The 5 main reasons for the debt increase are diminishing aid, money laundering, political uses of debt, uncertainty, and corruption.

The debt increase is evident in the last few years, and if not managed in time, it will be hard to control. Therefore, the best thing to do is to focus on rebuilding the economy and make business-friendly policies.

For this purpose, a plan is required in order to introduce long-term policies and to put people to work instead of scaring them off through FBR.

It’s your turn now. How do you see the rising trend of debt as?

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