Former Governor of the State Bank of Pakistan (SBP), Dr. Murtaza Syed, said on Saturday that Pakistan is trapped in “one of the deadliest debt traps in the world.”
In a lengthy thread on X, Dr. Syed, who also served as the acting governor of the SBP in 2022, highlighted Pakistan’s current debt situation and called for a “far more prudent route” to reprofile the country’s debt.
He remarked, “Pakistan is in one of the deadliest debt traps in the world. Our governments have accumulated too much debt and wasted it on unproductive spending like consumption. Staying current on past debt forces us to default on our development and climate needs. The government is paying more to service debt than any other country in the world and will continue to do so for the next several years. This necessitates punitive and unrealistic taxes to pay for old debt and leaves no real resources to invest in Pakistan’s future.”
Dr. Syed noted that Pakistan’s government is paying more to service debt than any other country and will continue to do so for the next several years.
He warned, “As seen in Kenya recently, this is putting Pakistan on a dangerous path toward social discontent. Some troubling exhibits, made using the UNCTAD debt dashboard, show Pakistan (in blue) compared to other developing countries (in orange). At 6%, Pakistan’s government pays more on interest as a share of the economy than any other country in the developing world. At 65%, Pakistan’s government has the second highest interest payments to government revenue ratio in the world, after Sri Lanka. This heavy interest rate burden leaves the government with no resources for social spending, which is critical for upgrading the skillset of our population and boosting the quality of jobs, exports, and foreign investment in the economy.”
He highlighted that the Pakistani government spends almost three times more on interest payments than on education, which is the second-worst ratio in the developing world after Sri Lanka. He added, “Similarly, the government spends almost six times more on interest than on health, a ratio that is only worse in Yemen, Angola, and Egypt. Clearly, repaying interest on debt is crowding out public spending on education and health in Pakistan, which is among the lowest in the world. Finally, the government pays twice as much on interest as it does on investment, which is critical for growth—a ratio that is only worse in Angola and Lebanon. Pakistan currently invests only 14% of GDP, less than half of what is generally considered necessary for sustained growth. This onerous debt burden and harsh crowding out are not just artifacts of the current high interest rates in Pakistan and globally. On all the above metrics, Pakistan’s interest bill has been among the highest in the world for the last four years, even when interest rates were much lower. This problem reflects Pakistan’s heavy debt burden and not high interest rates. And it is here to stay. Even if Pakistan’s revenues were to miraculously increase by a large 2% of GDP over the next couple of years, interest would still eat up around 55% of government revenues. All of the above indicate that Pakistan’s debt is unsustainable. One way to solve the problem is to try to boost government revenue by increasing taxes, but this will take time and can backfire, as demonstrated in Kenya recently,” he concluded.
