For a nation in deep economic distress, a losing national carrier, Pakistan International Airlines (PIA) the net loss of Rs. 19.26 billion, increased by 54.08 percent in 2020 compared with the last year, is a serious drag.
But a big damper in its fledgling credibility with fliers and the aviation world has emerged in the shape of licences of over 50 of its 800-plus pilots being cancelled. These licences were fraudulently procured and issued.
All this comes in the wake of other setbacks like many global airlines refusing to fly to Pakistan, or allowing the PIA to fly in for reasons of security and the scare of the spread Covid-19 virus.
This is but one of the many pointers to the economic situation that is having its political fall-out, what with rising prices of power, gas and essential commodities. This is partly but significantly fuelling the current campaign by the political opposition’s Pakistan Democratic Movement (PDM).
Under constant pressure to project a positive image of the government of Prime Minister Imran Khan, the media is, however, unable to hide the economic issues.
For the first time in 25 months, net foreign direct investment (FDI) turned negative at $16 million in November on the back of outflows from the power and communication sectors, latest data released by the State Bank of Pakistan (SBP) showed last week.
Outflows from the power and communication sectors stood at $83.2m and $23.7m respectively whereas China and Norway divested $78.4m and $55.8m during the month under review.
In November, foreign portfolio offloaded stocks worth $39.9m compared to $37.08m in October. Foreign portfolio investment has been negative during the last 10 months since the spread of Covid-19.
On a cumulative basis, the SBP data showed FDI during the July-November period decreased by 17 per cent to $717m from $864.4m during the same period last fiscal year.
The bigger crisis for the world to watch with concern is the external public debt. The government paid $11.895 billion in external public debt servicing during 2019-20, as per SBP data released officially. The amount was 23 per cent higher than $9.645bn paid in 2018-19.
The data showed that the government paid $9.543bn as principal for public debt and $2.352bn in interest during FY20.
The rise in public debt and debt servicing costs could create serious problem as the government has accumulated large debt to improve foreign exchange reserves. However, the sharp decrease in the current account deficit in FY20 and a surplus of $424 million in July FY21 could help strengthen the external account.
Khan has had to go around seeking funds. He told Samaa TV channel recently that he had made a serious error in not going to the Wold Bank and the International Monetary Fund as soon as he took office in August 2018. He had resisted it because of the stringent preconditions they would impose. Pakistan has in the past failed to meet those conditions and ended up losing out the tranches of loan since those conditions were unmet.
Khan did not mention it, but he has depended on China, the UAE and Saudi Arabia for loans and the experience has been none too happy. China has stepped in only now after Pakistan got into a di0lmatic tiff with Saudi Arabia, the biggest benefactor that had given thee billion dollar as soft loan. An angry Riyadh demanded the loan back and Beijing came to Islamabad’s rescue.
Come to think of it, Khan has mismanaged an economy that has been in crisis for three decades before he took office. The pillar-to-post run has been perennial since the foreign debt and liabilities have been increasing rapidly over the last several years. Each government is forced to borrow heavily from external sources — including multilateral and bilateral creditors, and commercial lenders — in order to meet its foreign debt repayment obligations, as well as to finance its budget, development and imports.
This has impaired economic growth. Pakistan is for ever struggling to avert potential defaults on foreign repayment obligations and shore up forex reserves.
With cheaper and softer bilateral and multilateral flows becoming scarce, the government’s reliance on expensive foreign commercial debt is rising. In November alone, it was forced to borrow $1.1bn from commercial lenders, pushing up the total debt flows in the first five months of the present financial year to $4.5bn. According to the economic affairs ministry, the new debt inflows so far constitute 37pc of the annual budget estimates of foreign borrowings of $12.4bn for the entire fiscal.
Dawn newspaper in its editorial (December 20, 2020) has pointed at “multiple reasons why Pakistan has turned into a heavily indebted nation. The exponential growth in foreign debt levels underscores that the country has been unable to attract adequate non-debt-creating, long-term inflows like FDI or increase its exports, which remain stuck at $23bn-$24bn a year, to meet its external account requirements.
“The extremely low level of formal domestic savings as reflected by banking deposits means that the government would have to depend on foreign savings to finance its budgetary operations.
Systemic reforms are needed. The failure to reform the tax system and increase revenue collection is a major factor behind heavy domestic and foreign borrowings by the government.
The editorial points to a “debt trap.”
“The fact that Pakistan’s external debt continues to accumulate and it has to borrow more dollars to repay its old loans suggests that the country has actually been caught in a debt trap.”
Roughly since the Khan government took office, since July 1, 2018, the government has accumulated $23.6bn in foreign debt. The external debt rose by $10.7bn in the last financial year and $8.4bn in 2018-19 with debt servicing becoming the largest budget expense.
“This is not sustainable for any economy, least of all a fragile one. The government should put its house in order to attract FDI, boost exports, increase tax revenues and incentivise domestic savings to get out of this trap,” the newspaper has said, echoing what experts at home and the donors abroad have been saying for long. (Ends)