With the end of 2021, many people are wondering whether the New Year will bring better tidings or more of the same. The Pakistani people, both leaders and citizens, have time and again shown that we are more than capable of making good things go bad in the blink of an eye.
There are various factors such as debt by previous government in 10 years and current government in 3 years, foreign reserve(s), exports will increase by 5%, effect of COVID-19 and new variant of omicron, increase in electricity and oil prices, rate of dollar increases, unavailability of urea from market, new taxes imposed by government. On this basis, Pakistanis’ people expect that 2022 might be better or worse than the previous year(s).
When the Pakistan People’s Party came into power, Pakistan was facing economic, security and political crises all at the same time. The Pakistan People’s Party-led government obtained domestic and foreign loans worth Rs. 10.3 trillion over the past five years, from 2008 to 2013.
From 2008 to 2013, the total government debt increased by over 135%, going from Rs. 6,435 billion to Rs. 15,096 billion. As a percentage of GDP, total government debt increased by 4.4%, going from 62.8% to 67.2% during this period. It was under this crisis that PML-N took over the reins of the economy in 2013 and, much like PPP, it had to seek a bailout from the IMF soon after coming into power.
The PML-N government has broken all previous records of taking foreign loans, as it borrowed $40 billion from external sources during its four and half years tenure. Pakistan had borrowed $13.38 billion from the multilateral, $5.048 billion from bilateral, $6.7 billion from commercial banks and $6.4 billion from the IMF by the end of September 2017. Similarly, the government has issued $6.5 billion Sukuk and Euro bonds in international capital market during the last four years.
Pakistan’s total debt and liabilities jumped to record of Rs. 50.5 trillion at the end of September 2021, an addition of Rs. 20.7 trillion in the past 39 months in PTI 3 years of government. There was an increase of nearly 70% in total debt of the country. External debt in Pakistan increased to 127023$ million in the third quarter of 2021 from 122199$ million in the second quarter of 2021.
Along with total debt and external debt as of October 2021, total public debt and liabilities of Pakistan is estimated to be about ₨. 40.279 Trillion/US$222 billion which is 98.7% of gross domestic product (GDP) of Pakistan. The PTI government has added Rs. 14.9 trillion to public debt during almost three years in power, which is equal to 140% of the total debt, the PML-N government acquired in five years.
The addition of Rs. 14.907 trillion to public debt in just three years was equal to 82% of gross public debt that the last two elected governments of Pakistan People’s Party (2008-2013) and PML-N (2013-2018) had added in 10 years. The Pakistan Tehreek-e-Insaf (PTI) government added on an average Rs. 13.6 billion a day to public debt, which was more than double the daily average addition of Rs. 5.8 billion by the PML-N government.
When the PML-N government completed its five-year term, total public debt stood at Rs. 24.95 trillion, or equal to 72.5% of GDP. In just three years, it has surged to 83.5% of GDP, which is unsustainable and carries huge risks for the economy and the country’s foreign policy. Foreign exchange reserves can include banknotes, deposits, bonds, treasury bills and other government securities.
These assets serve many purposes but are most significantly held to ensure that a central government agency has backup funds if their national currency rapidly devalues or becomes all together insolvent. Foreign Exchange Reserves in Pakistan increased to $24776.90 million in July from $24398.20 million in 2021. The State Bank of Pakistan raised its key policy rate by 100 bps (basis points) to 9.75% on December 14th of 2021, in order to counter inflationary pressures and to ensure stability in growth.
Additionally, October and November balance of payment deficits were larger than expected. It is expected that current account deficits gradually moderate in the second half of 2022. Also, inflation is expected to decline toward the medium-term target range of 5-7% during 2023. The annual inflation rate in Pakistan accelerated to 12.3 % in December of 2021 from 11.5 % in November.
It was the highest reading since February 2020, mainly boosted by prices of housing & utilities (16.6 % vs 14.8 % in November); restaurants & hotels (12.6 % vs 11 %) and furnishings (12.3 % vs 10.4 %). Meantime, prices continued to increase for both transport (24.1% vs 24.4 %) and food & non-alcoholic beverages (10.3 % vs 10.5 %). On a monthly basis, consumer prices edged down 0.02 %, the first monthly decline since June, reversing from a 3 % rise in the previous month.
Pakistan is struggling to boost the country’s information technology exports to $3.5 billion by offering more incentives to local companies, though experts maintain the proposed increase by the end of the next year is still not ambitious enough when compared to other countries. The month of November of the current fiscal year (FY22) saw a steep rise of 162.4 % in trade deficit which was driven largely by more than triple increase in imports compared to exports from the country.
Just look at how we handled the economic disturbance of the past few years. Pakistan reports total Coronavirus Cases: 1,302,486, Deaths: 28,962, Recovered: 1,258,332 till now. The positive cases ratio reached to 2.89%. With COVID-19 Pakistan reports total 318 new cases of Omicron, Islamabad: 177, Lahore: 217 and Karachi: 124 cases. Doses given to Pakistan: 161 million, Fully vaccinated: 73.5 million, % of population fully vaccinated: 33.3%.
With Covid-19 still a global problem, we can expect it to also continue decline economic gains in the coming year. And even if the pandemic is not a significant factor, economic realities have not kept speed with forecasts for a while now. Pakistan had already agreed with the IMF to increase the price of electricity hence, electricity prices will also be raised. Petroleum development levy would be increased by Rs. 4 per liter every month as the government aims to take petroleum development levy up to Rs. 30. Pakistan is trying to revive a $6 billion loan package with the IMF.
The country needs the money, but economists are worried the IMF’s conditions will trigger price hikes burdening Pakistani consumers. Forecast for the rupee’s average rate this year is now Rs, 164 to U.S. dollar compared with Rs. 158 previously. For 2022, Fitch now expects an average rate of Rs. 180 versus a previous forecast of Rs. 165.
As farmers are taking to the streets to protest against the unavailability or availability at higher official rates of fertilizers, the government plays it cool, saying the issue is being “over-projected”. Urea is either unavailable or one has to pay at least Rs. 2,800 against Rs. 1,768 per 50kg bag official rate of the compost to get the supplies. Rs. 343 billion Mini-budget tabled:
The federal government presented the supplementary finance bill before the Parliament for withdrawal of General Sales Tax (GST) exemptions and proposed imposition of 17% tax on nearly 150 items on Thursday. According to the details of the bill, 17% GST will be imposed on 140 essential consumable and industrial goods.
Meeting the IMF conditions, the government slapped taxation measures to fetch Rs. 343 billion as a pre-requisite for resumption of $6 billion External Fund Facility (EFF) of the International Monetary Fund (IMF). No taxes to be imposed on consumer goods in mini-budget. Good governance is not just about the economy. We still have international issues to deal with, chiefly the situation in Afghanistan. “Overall, people should not expect too much from 2022”
