EDLs up by $9.5bn to hit 1/3 of GDP

ISLAMABAD: Rising $9.512 billion in last one-and-a-half-year Pakistan’s outstanding external debts and liabilities have reached to almost one-third of the country’s GDP.

At end of December 2009, country’s total EDLs stood at unprecedented $55.675 billion or 32 percent of GDP, while in June 2008 these stood at 46.16 billion dollars (27.6 percent of GDP), the State Bank of Pakistan (SBP) reported Thursday.

The stagnant exports and foreign exchange earnings, together with heavy reliance on foreign resources, were the main factors contributing to the worsening of the external debt indicators.

In six-month period, from June to December 2009, these increased by $3.34 billion, as on June 2009, liabilities were recorded at 52.33 billion dollars.

According to the bank’s figures, out of these liabilities, external debt stood at $54.453 billion against $50.76 billion at end June 2009 and $53.99 billion in September of the same year.

The Ministry of Finance latest summary of Pakistan’s consolidated federal and provincial expenditure figures also reported that during July-December 2009-10, on external debt servicing, Islamabad has spent about $375 million that is 0.2 per cent of GDP.

Already the debt-servicing burden has progressively reduced the government’s ability to undertake much needed infrastructure development projects, and further rise in debt burden would hamper country’s efforts for social and economic development, economist believe. Debt service burden has also a negative impact on labour and capital productivity, which adversely effects economic growth.

Besides, back-record of external debt of the country also reveals a significant increase in last few years. As on June 30, 2003 external debt stood at $32.46 billion, June 2004 ($32.93 billion), June 2005 ($34.04 billion), June 2006 ($35.89 billion), June 2007 ($39.5 billion), June 2008 ($44.87 billion), June 2009 ($51.06 billion) and now at the end of December 2009, it has jumped to $54.45 billion. Increased debt burden could negatively affect economic growth by reducing capital accumulation and productivity.

Foreign exchange liabilities comprising on central bank deposits, foreign currency bonds and other liabilities almost stood stagnant at $1.22 billion since June 2008.

Independent economists believe that the increase in public debt could have severe long-term direct and indirect negative impact on economy. They say the government to make strong fiscal adjustments instead of more borrowing. Otherwise, in coming years, debt problem will cause severe macroeconomic consequences like low economic growth, closure of businesses, rising unemployment and poverty, deterioration of physical and human infrastructure, high inflation, pressures on exchange rate, discouragement of both domestic and foreign private investment etc.

Lessening over-dependence on external debt needs improvement in economy’s competitiveness in order to stabilize macro imbalances and helps mobilize domestic resources.

A viable monitoring system was also a need of the hour, which could ensure proper and systematic utilization of the external borrowings for the developmental projects. Provision of a favourable macroeconomic environment was also needed for reducing mismanagement to promote economic growth.