47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...
47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...
47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...
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Chapter 9Public Debt9.1 IntroductionDevelop<strong>in</strong>g countries h<strong>in</strong>ge <strong>in</strong> a delicate balance;they needto borrow <strong>in</strong> order to facilitate theirdevelopment process - on the other hand theborrow<strong>in</strong>gshould be allocated efficiently <strong>in</strong> viewof their repayment ability. Debt may well act as acatalyst <strong>in</strong>the course of growth of an economy, butonly if itis undertaken to facilitate a very wellthought out road map devised withdue diligence.Such measures can also lead to strengthen<strong>in</strong>gg acountry’s capacity ofrepayment. Unsusta<strong>in</strong>ablelevels of debt can plague economic growth bylower<strong>in</strong>g the actual developmental expenditure dueto heavy debt servic<strong>in</strong>g requirement. This <strong>in</strong>tricatescenario calls for a comprehensive, dynamic andrule basedpolicy which ensures the right choicesamong several options,addressesf<strong>in</strong>ancialconstra<strong>in</strong>ts and ensures <strong>in</strong>tergenerational welfareimpact.<strong>Pakistan</strong>’ss debt dynamicshaveundergonesubstantial changes s<strong>in</strong>ce fiscal year 2007. Amyriadof domestic issues andthe <strong>in</strong>ternationalrecession and credit crises have impactedthecountry’s debt position. Higher <strong>in</strong>terest payments,large subsidies specially food and energy, grow<strong>in</strong>gsecurityspend<strong>in</strong>g needs, narrow tax base and ris<strong>in</strong>g<strong>in</strong>ternational commodity prices have resulted <strong>in</strong>large tw<strong>in</strong> account (i.e. fiscal and current account)deficits. The f<strong>in</strong>anc<strong>in</strong>g of the fiscal deficitis agrow<strong>in</strong>g challenge <strong>in</strong> the wake of the shr<strong>in</strong>k<strong>in</strong>g netforeignassets of the bank<strong>in</strong>g system <strong>in</strong> <strong>Pakistan</strong>ow<strong>in</strong>g to the current account deficit; the resultantliquidity crunch is exert<strong>in</strong>g pressure on domestic<strong>in</strong>terestt rates. Lower FDI and other non-debtcreat<strong>in</strong>g flows due to energy shortages and securityconcerns have contributedtowards negativebalanceof payment and drawdown on officialforeigncurrency reserves of the country. TotalLiquid Foreign Exchange Reserves were $16.49billion by end-April 20<strong>12</strong>, compared to $18.24billion as of end June <strong>2011</strong>.Fig-9. 1: Public Debt (as percent of GDP)100%90%80%70%60%50%40%30%20%FY80FY90FY99FY00FY01FY02FY03FY04FY05FY06FY07FY08FY09FY10FY11FY<strong>12</strong>-Q3<strong>12</strong>5
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