The International Monetary Fund (IMF) has projected an increase in Pakistan’s gross debt by 1.9 percent to 78.6 percent of the Gross Domestic Product (GDP) in 2020 against 76.7 percent in 2019, reported Business Recorder.
According to the IMF report “Fiscal Monitor, How to Mitigate Climate Change,” it is projected that the government gross debt would rise to 78.6 percent of GDP in 2020 and decrease to 76.1 percent in 2021.
The Fund has projected an increase in government net debt by 2.7 percent – to 75.2 percent of GDP in 2020 against 72.5 percent in 2019. Earlier this year the net debt was projected to increase to 72.7 percent of the GDP in 2019 and 75.3 percent in 2020 against 67.2 percent in 2018.
The government expenditure is projected to increase to 23.6 percent of GDP in 2020 as compared to 21.6 percent in 2019, and projected to decrease to 23.3 percent by 2021. The government expenditure was earlier projected to reach 22.2 percent of GDP in 2019 and 23.3 percent in 2020 compared to 21.8 percent in 2018., claimed the report.
The Fund also projected Pakistan’s budget deficit at 7.4 percent for 2020 against 8.8 percent for 2019. The Fund earlier this year had projected budget deficit at 7.2 percent for 2019 and 8.7 percent for 2020. According to the report, there would be gross financing need of about 45.6 percent of the GDP in 2019. The country’s debt to average maturity is estimated at 72.2 percent of GDP in 2019.
The higher the Debt-GDP ratio, the less likely a country’s ability to pay back its debt.
According to the World Bank, in the emerging and developing markets, each additional percentage point above 64% annually slows economic growth by 2%.
Therefore, if IMF is projecting Debt-GDP ratio for Pakistan to increase from 77% to 78% of the GDP, that means Pakistan is already in Default Mode. Default is a nice name for Bankruptcy or Insolvency.
Another important point is that Pakistan cannot print American dollars as fiat money to pay back its massive debt approaching a total of $100 billion.
By 2020-21, Pakistan Debt-GDP ratio will be likely 80% and economy will slow down to 3% GDP growth or even lower.
How can a country like Pakistan finance its debt servicing out of the 20% of the remaining GDP Net Revenues if Debt-GDP ratio is 80%.?
Pakistan cannot print dollars to pay back its debt piling up. So what strategy do our political leaders and economic managers have to pay off the debt with interest?
Do Prime Minister Imran Khan, his finance minister Hafiz Sheikh and Governor State Bank Reza Baqir have a magic formula to get rid of huge debt that is piling up like the garbage mountains of Karachi?
If we sell all state owned organization that are making losses at just 1 rupee price. We dont need to spend 1600 billion every year from budget.
Other option is to recover back 20 billion dollars from nawaz sharif and zardari.