Pakistan: Domestic, international borrowings: PML-N govt deviating from election manifesto, warn economists

Economists see the newly-elected Pakistan Muslim League-Nawaz (PML-N) government as following the borrowing-centric policies of the previous PPP-led government with it to also have embarked on a national and international campaign to add billions of dollars to the heavily-indebted country’s existing debt burden. Finance Minister Ishaq Dar is reportedly beating the victory drums for, almost, persuading the international lenders, prominently the International Monetary Fund (IMF), for extending the dollar-hungry Pakistan a bailout package of at least $11 billion in the next couple of months. On the other hand, the central bank, by issuing its quarterly auction calendar on Monday, raised eyebrows in the quarters concerned about the intentions of the heavily-mandated new government that, seemingly, is set to follow the footsteps of its predecessors who ran the country’s affairs for five years through borrowing trillions from the domestic lenders, specially the banks. During the first quarter of FY14, July-September, the State Bank would be raising Rs 1.75 trillion for the cash-strapped federal government through auctioning T-bills worth Rs 1.6 trillion and Pakistan Investment Bonds (PIBs) of Rs 175 billion to the primary dealers, mostly the scheduled banks. This mammoth amount would certainly be borrowed from the risk-averse banks at the expense of an already expanded monetary growth that, official data show, accumulated to 12.66 percent or Rs 967.18 billion by June 21. The analysts believe that this naturally has an inflationary impact as the period under review saw over Rs 312 billion of currency in circulation compared to Rs 218 billion of last year’s corresponding period. “This government’s policies are the continuation of old policies and the PML-N is totally deviating from its election manifesto,” Dr Shahid Hasan Siddiqui told Pakistan Today. The economist said the government’s total emphasis was on taxing the common man and taking domestic as well as foreign loans. “There is no emphasis on enhancing the national savings,” Dr Siddiqui said. “There also is no emphasis on increasing the tax-to-GDP-ratio by taxing incomes, especially in sectors like agriculture, stock exchange and property,” Pakistan, the country of around 200 million people, is among the countries where tax-to-GDP-ratio stands the lowest at 9 percent. The federal finance has vowed, in his budget speech, to gradually boost this number up to 15 percent. Afsar Bin Shahid, another senior analyst, opines that even the most-desired financial bailout packages from bilateral and multilateral agencies such as the IMF, World Bank, the Asian Development Bank, the United States, Japan and the United Kingdom, would not work for Pakistan which is faced with the uphill task of improving the ever-deteriorating law and order situation domestically. “Given the prevailing global recessionary climate raising (the reported) $11 billion will not be an easy job for Pakistan,” said the analyst. He said the targeted lenders, sans exception, would love to see first Pakistan demonstrate how it would generate the repayment capacity. He was critical of the new government for not giving even a mention to the recovery of billions of rupees embezzled by the corrupt politicians and bureaucracy in past. “Only the masses are being burdened with taxes,” said Shahid. For Islamabad to bring the troubled economy back on track, the analyst proposed, the improvement of law and order was a must. “The poor security situation and the resultant closure of businesses might adversely impact the lenders’ consideration of Pakistan as a reliable borrower,” said Shahid, a seasoned banker. While Sindh Chief Minister Qaim Ali in the last Sindh Assembly session had put it at Rs 15 billion, a financial analyst said frequenting strikes in Karachi, the country’s undisputed financial hub, cost the already ailing economy at least Rs 7 billion a day. “The economy will incur a huge annual loss up to Rs 400 billion if these politically-motivated strikes kept the current pace,” the analyst warned and questioned that given such an anti-business situation how the government would be able to generate resources to repay the borrowed billions of dollars. Improving the law and order, he suggested, was a must for restoring the investors’ confidence that, the analyst believed, was the most sustainable remedy to the resource-constrained Pakistan’s financial woes. - See more at: http://www.pakistantoday.com.pk/2013/07/02/news/national/domestic-international-borrowings-pml-n-govt-deviating-from-election-manifesto-warn-economists/#sthash.9IQphSvD.dpuf