The government’s admission that the country’s external debt bearing capacity has deteriorated shows how much it lacks ability to manage financial and economic affairs. The admission came through a debt policy statement by the Finance Ministry that there was disproportional increase in the country’s external debt than the foreign exchange earnings last year. Experts put increase in the external debt to 120 percent of the foreign exchange earnings by the end of the previous fiscal year. The ratio was 110 percent in fiscal year 2015-16 and the highest after the one was recorded during the final year of the PPP government. The debt policy statement has been submitted to the National Assembly in compliance with Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005 that allows legislators to assess failures and successes of the government in the public debt management. The statement shows that not only the external debt increased in percentage of foreign exchange reserves, the cost of external debt servicing in percentage of foreign exchange earnings has also increased. According to experts, the government is hiding its failures by amending the law as it has failed to make any improvement in the financial management.
The external debt in terms of percentage of foreign exchange reserves has increased to 290 percent due to growing current account deficit. The lack of coordination within the government ministries and departments is another setback facing the nation. When a ministry claims success in certain areas, it puts the responsibility of failure on another government department. It is easy to put the blame on international recession, rise in oil prices or subdued growth in western countries for failures in the country. Unfortunately, the country experienced continued fall in exports despite achieving Generalised System of Preferences status from the European Union.
Only earnings through exports can increase foreign exchange reserves and that is the best option. Industrialists complain that the Finance Ministry still has to devise a mechanism to release tax refund claims which have piled up to Rs 300 billion. Indirect taxes and imposition of regulatory duty on raw material have increased the cost of production, making the exportable items uncompetitive in the international markets. With increase in the foreign loans, the amount of debt servicing has also increased. The nation does not need admissions and explanations, but practical steps to resolve the financial mess.
