In its latest Global Economic Prospects report, the World Bank has highlighted the challenges faced by the economy of Pakistan amid growing debts and contingent liabilities. Though the bank projects Pakistan’s economic growth at 5.5 percent in the next fiscal year due to private sector investment, increase in energy supply and improvement in security situation, it also warns against rising circular debt in power sector and uneven debt repayments to international donor agencies. According to the report, Pakistan has recently retired $750 million Euro bond by obtaining $1 billion loan from China, showing that the country is heading toward debt trap. The external debts are growing as exports have been declining and remittances sent by Pakistani expatriates have started declining. The external debt servicing consumed $3.9 billion from July to March of the current fiscal year. The circular debt of power sector has increased to Rs412 billion and the Water and Power Ministry has sought over Rs100 billion to clear immediate liabilities.
Experts believe in the absence of real growth in industrial and agriculture sectors, the coming years will have devastating impacts on the economy. The debt servicing consumed 24.2 percent of export receipts in nine months, which is the highest figure in one and half decades. The government is fully relying on the economic corridor projects and soft loans from Chinese investors which could add to the economic woes. Newspaper reports suggest that the government has issued fresh guarantees of Rs368 billion, equivalent to 1.2 percent of its Gross Domestic Product which could not exceed more than two percent of the GDP in any fiscal year under the Fiscal Responsibility and Debt Limitation Act of 2005. This ratio of guarantees, however, remained below one percent of the GDP except in 2009 and in 2010 when they crossed 2.2 and 1.2 per cent, respectively, during the tenure of the Pakistan People’s Party.
The bank emphasized for the establishment of peace and security in Afghanistan to guarantee investment in Pakistan and rising tensions between India and Pakistan could also affect economic activities in the two countries. In the current situation, the government will have to concentrate on the agriculture and industrial sectors if it wants to achieve macroeconomic stability and will have to minimize its reliance on foreign loans. A total reliance on the China-Pakistan Economic Corridor would not simply help improve the national economy.
