Pakistan government debt

Topic of the presentation,
“Pakistan Government Debt”
Group members Registration number
1.Shah Wazir kakar 2496-SE/BSECO/S15
2.Muzamil Ahmed 2511-SE/BSECO/S15
MM.DD.20XX2

Introduction to Pakistan Economy
The economy of Pakistan is the 25th largest in the world in
terms of purchasing power parity(PPP)and 42th largest in
terms of nominal GDP.
> GDP by sector
Agriculture: 18.86%
Industry: 20.91%
Services: 60.23% (2018.)
> Population below the poverty line is14%(2013)The economic
growth rate has averaged 5%anually since1947-2011.
MM.DD.20XX3

What is Debt ?
An amount of money borrowed by one party from another. A debt
arrangement gives the borrowing party permission to borrow money
under the condition that it is to be paid back.
Bonds, loans are all examples of debt. Many corporations &
individuals use debt as a method for making large purchases that they
could not afford under normal circumstances.
MM.DD.20XX4

Two types of public debt:
Internal debt-
Owed to lenders within the country.
e.g. bonds issue by govt
External debt –
Owed to foreign lenders.
e.g. “World bank”& IMF
MM.DD.20XXADD A FOOTER5

Why govt take debt?
When revenue are less then expenditure then govt need
funds, so they take loans.
Many nations borrow money to improve economy by
providing employment, creating opportunities for making
revenue or building better infrastructures to improve living
standards.

Continued,
When the borrowing costs are low it can be more desirable to borrow
than raises taxes.
To reduce the budget deficit the government takes heavy debt.

 Introduction to Pakistan debt
Public debt was 54.4% of GDP in 1980s, which increased to
unsustainable level in 2017.
Servicing and debt 2017 it reached to almost 67.20% of its GDP.
World donor bodies to Pakistan like International Monetary Fund
(IMF)
World Bank (WB) Asian Development Bank (ADB) &
Islamic Development Bank (IDB)
MM.DD.20XX8

Causes of Pakistan’s debt.
During the 1960s, Pakistan was seen as a model of economic
development around the world.
Two wars with India in 1965 and the 1971 and the resultant separation
of Bangladesh from Pakistan also adversely affected economic
growth.
Later, economic mismanagement in general, and unadvisable fiscally
economic policies in particular, caused a large increase in the
country's public debt.
MM.DD.20XX10

Continued,
In 1979 the war of soviet union and Afghanistan started, Pakistan also
took part in the war. Pakistan has given assistance and also took a
loan of $3.17 billion.
In 1998 when Pakistan nuclear tests conducted, that time Pakistan
took heavy debt.
After 9/11 attack on world trade center in USA,USA attacked
Afghanistan that time Pakistan provide full support to the America and
west.
The Earth quick in 2005 leads to take loan.

Cause of debt burden.
Heavy External Debt.
stagnant Fiscal deficit Pakistan had a lower-than-average tax taken.
(Only 0.57%)
Oil Prices.
Less exports & more imports
Food Aid.
slow economic growth
low investment
MM.DD.20XX12

Continued,
In appropriate implementation of macroeconomic policies, political instability,
corruption and poor law and order situation are the key factors for rapid
growth of external debt in Pakistan.
To improve industrial sectors in 1960 Pakistan took heavy debt.

Current situation of Pakistan debt.
Pakistan external debt and liabilities have soared to record
$91.8 billion ,showing an increase of over 50% .
Pakistan’s total external debt and liabilities amount to $76 billon.
Pakistan’s government has paid $393 million as part repayment of its
loan facility with the International Monetary Fund.
Balance of payments falls 58%.
Regime wise analysis of Pakistan1958-2013.
Structure of the Pakistan government can has been broken down into
two ways. MM.DD.20XXADD A. FOOTER14

 Military regime.
1958-1969 Muhammad Ayub Khan’s Era
1977-1988 Zia- Ul-Haq’s Era
2001-2008 Pervez Musharraf
Here we will be evaluating the economic debt performance of
governments of Pakistan from the year 1977 to 2013. military
government of Ayub, foreign aid commitment was 5.8 percent of
GDP.
MM.DD.20XX15

 Military Dictatorship.
1977-1988 Zia- Ul-Haq’s Era
it is also called the era of Islamization
The average fiscal deficit was 7.7% of GDP. Average GDP growth
rate was 6.5% and 7% annually.
Foreign saving and investment was 21% on average.
By 1989 the US and Pakistan were discussing $3.2billion Aid
packages.
MM.DD.20XX16

1977-1988 External debt was $9425million Debt growth rate 20.1%
external debt to GDP ratio was 39.8 percent or $22billion in 1980.
public debt $127 billion debt servicing 4.0%.
Public debt growth rate to GDP ratio was 8.6%.
Debt from non-bank sources was in excess of Rs150 billion or well
over 4% of GNP.
MM.DD.20XX17

MM.DD.20XX18
1977-1988 High levels of Aid from the United States, military grants
from China and subsidies from Saudi Arabia.
Foreign savings was 21% of financing investment in1980s.
Zia ul-Haq received a $5 billion from U.S was channeled through
Pakistan for Afghanistan’s mujahedeen.

 Democratic regime.
After the earlier the major political regimes was.
Zulfikar Ali Bhutto 1971-1973.
Benazir Rule 1988-1990.
Nawaz Sharif Rule 1990-1993.
Benazir Rule 1993-1996.
Nawaz Sharif fifth Rule 1997-1999. MM.DD.20XX19

 Democratic Regime.
(1988-1990) & (1993-1996)
Benazir Bhutto’s Rule After the death of Zia-Ul-Haq the first open
elections were held in November 1988 and the Pakistan Peoples
Party won the elections with heavy mandate.
External debt and liabilities $22 billion in 1990.
After the end of the cold war, during democratic regimes in
Pakistan the US economic Aid fell from well above $500 million a
year to less than $100 million a year.
MM.DD.20XX20

(1990-1993) &(1996-1999)
Nawaz Sharif’s Era.
In 1999 total public debt as 99.3% of its GDP and 629% of its
revenue receipts it was the highest in South Asia. compared to Sri
Lanka (91.1% ) , India (47.2% ).
Internal Debt in 1999 was 45.6% of GDP and 289.1% of its revenue
receipts, as compared to Sri Lanka (45.7%) and India (44.0%). in
October 1999 foreign debts stood at $37.9 billion.
MM.DD.20XX21

Observation:
Unemployment rate rose as well.
Foreign savings and investment was an average of 25% in1990-94.
The HDI of the United Nation Development Program ranked Pakistan in
one of its lowest development categories in1999.
Main factors determined Pakistan’s economic performance in the
1990s.
First, political instability and frequent changes in the government.
Widespread miss governance by the two major political parties ruling
the country during this period.
MM.DD.20XX22

$4.02-billion military and economic Aid package in 1987.
Inflation remained low and poverty declined from 46% down to 18%.
Pakistan became the second largest recipient of American aid after
Israel.
Domestic debt was Rs.58 billion in mid-1981. Rs.290 billion in 1988.
Rs.900 billion in 1996 Public debt as 54.4% of its GDP.
MM.DD.20XX23

Military Dictatorship.
(2001-2008) Musharraf's economic Era: External Debt and Liabilities
(EDL) was $37.9 billion at end-June 2000.
War on terror brought in approximately $10 billion of military
assistance.
June 2007 foreign loans was $40.5 billion. in 2008, the country’s
external debt was $45 billion annual debt servicing payments were
$6327 million in 2001-02, 70% of the government revenue was
consumed by debt servicing in the year 2001.
Military Dictatorship: (2001-2008)
Total public debt was Rs.33986 billion.
MM.DD.20XX24

 Positive aspects of Musharraf’s Era: (2001-2008)
One of the four fastest growing economies in the Asian region
during 2000-07. per capita income rising from under $500 to over
$1000 Its growth averaging 7.0 %. o Pakistan succeeded in
reducing poverty by one-half. creating almost 13million jobs,
halving the country's debt burden, raising foreign exchange
reserves most importantly taking Pakistan out of the IMF Program.
Real GDP increased from $60 billion to $170 billion during 2000-07.
Improved macroeconomic performance enabled Pakistan to re-
enter the international capital markets in the mid-2000 international
trade increased from $20 billion to nearly $60 billion. MM.DD.20XX25

(sep2008-Mar 2013)
Asif Ali Zardari’s Rule.
Pakistani rupee lost one-third of its value.
Country was moving rapidly towards the IMF.
Public debt also increased to $56.315 billion rose from $52.107
billion scheduled bank borrowings $193 billion in June 2010. $239
million in 2011 increase by 23.8 %.
MM.DD.20XX26

(sep2008-Mar 2013)
External Debt And Liabilities (EDL) rose 7.5% In 2 years 2009-11
$55.901 billion in 2009-10 $60.116 billion in 2010-11. Increment $711
million in the last quarter of 2010-11.
International Monetary fund ( IMF) $8.94 billion in 2010 $8.07 billion
in 2011 $399 million in February 2012.
MM.DD.20XX27

(sep2008-Mar 2013)
In 2008, SBA ( stand by agreement) agreement worth $11.3 billion
with IMF.30% increase in government borrowing for budgetary
support short term debt Rs2.854 trillion $16 billion increment debt
in 4 years.
Receipts from multilateral $1.21 billion.
MM.DD.20XX28

 NAWAZ SHARIF ERA (2013 to 2018)
The govt take loans of $ 35 billion , and $17 billion were utilized to
repay the previous debt.
IN 2012 GOVT DEBT to GDP ratio was 63.3% and in Nawaz Sharif
era in 2017 it reached to 67.2%. It increases by 4%.
FDI in 2012 was $2099.1 million, and in 2017 it increases to $3434.9
million.
In this era huge investment comes to country.
MM.DD.20XX29

 Comparison between dictatorship and civilian govt;
In dictatorship The average foreign aid from U.S
always $500million on every year.
In democrats rules The average foreign aid from U.S always $100mi
-llion on every year. domestic debt negatively effecting economic
growth more or the external debt.
Pakistan is utilizing this debt for consumption.
MM.DD.20XX30

 Suggestions;
>Introduce direct taxes.
> Tax collection potential is about Rs.4.5 trillion.
>We are only collecting on-third of the tax potential.
>Target of Rs2.475 trillion that requires about 28%
last year collection of Rs1.936 trillion (21%)
>Pakistan needs reforms, not Aid.
>Enough resources to be able to fill the investment gap.

>Policies pursued to strengthen macroeconomic environment.
>Reducing “Twin Deficits”
raise taxes or cut spending Keeping inflation low.
>Building foreign exchange reserves.
>Maintaining stability in exchange rate.
>Maintaining consistency and continuity in policies.
>Current account deficits and government budget deficits
occurs at the same time.
MM.DD.20XX32

Pakistan government debt

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Pakistan government debt