Debt Situation of Pakistan

Brief analysis of the total debt numbers of Pakistan in last 2-3 year:

Year Total Debt (Rupees)

2018 24953 billion
2019 30000 billion
2020 35207 billion

Total Debt(Billion Rupees)

40000

35000

30000

25000
Total Debt(Billion Rupees)
20000

15000

10000

5000

0
2018 2019 2020

We see that the debt has increased in last three years. In 2018, the total debt was 24953 billion
rupees, increase of 3544 billion rupees respective to the year 2017. In 2019, the total debt was
30000 billion rupees, increase of 5047 billion rupees respective to the year 2018. In 2020, the
total debt was 35207 billion rupees, increased 5207 billion rupees from 2019.
Discussion on factors behind rising debt burden of Pakistan:
When the revenue is less than the expenditure then to overcome the budget deficit
government has to take loans. Factors behind the rising debt burden of Pakistan are as
following:

 Low number of Direct Tax Pairs and Weak Enforcement Policy

In Pakistan, our economy is much dependent on indirect taxes and has very low
number of direct tax pairs. As coated in SBP annual tax report 2018-2019,”Though the
number of active income tax payers increased to 1.46 million in FY18 from 0.98 million
in FY14; it looks too small when compared to 57.4 million employed labor force”.
 Burden of loans taken by previous Government
One of the key factors is overvalued exchange rate and excessive borrowing by
previous government. The present government has had to pay Rs 5.7 trillion (47% of the
increase) as interest on debts borrowed by the previous regimes.
 Corruption and misuse of loans
As said by transparency international report 2018,”Pakistan rated 114 out of 158
countries in global corruption index”. This uncontrolled corruption and miss utilization
of funds resulted as increased foreign debt.
 Political instability and inconsistent Government policy
Government was unable to adopt consistent economic policies to overcome this
crisis and as a result, government has to borrow again and again to overcome the
circular debt and run the economic circle.
 Trade deficit
One of the key factor behind increase in debt is low number of exports as
compare to imports, this trade deficit ultimately effects government revenue which
further results in loans to overcome government expenditures.

Impacts of huge debts on the economy of Pakistan:

 Hamper Economic Growth

The rising foreign debt affects the ability to invest in infrastructure
development; education health etc. as the limited revenues goes to pay off these loans.
This effects long term economic growth.
 Increase in Inflation
 Rising debt worse affects the government policies. As a result Government is
unable to ensure affordable prices of basic needs for common people therefore the
inflation increases.
 Increase in Unemployment
When foreign debt increases, government policies to promote new business is
also affected as the main target of government is to increase its revenue. Therefore as
government is unable to promote new businesses there are less employment
opportunities in the market.
 Involvement of Donor agencies in your policy making
Donor agencies like IMF, World Bank and ADB directly impose policies for loan
recoveries either they are favorable or unfavorable for economy, as a result they control
you economic policy that increase the burden on common people.

Recommendations to increase revenues for the Government:

 Increase Tax Rate

Government can increase rate of direct and indirect taxes to increase its
revenues.
 Reduce Tax evasion
Government must take precautionary measures to control tax evasion and
ensure strict measure for regulation.
 Expanding tax net
The number of active income tax payers in Pakistan is 1.46 million in FY18, it can
be further increased when government facilitate tax payers and ensure transparency in
utilization of this tax income. It will attract other people to be a tax payer.
 Impose new taxes
Government should impose new taxes on imported good. It will increase
government revenue and also promote local manufacture commodities.
 Generating economic activities
Government should formulate policies to generate economic activities in a
country and ensure ease of doing business. This will help government to control
unemployment and increase government revenue.
References:
 http://www.finance.gov.pk/rebuttals_details1.html

 https://www.sbp.org.pk/AnnualRepo/index-4.2.asp

 https://fbr.gov.pk/categ/active-taxpayer-list-income-tax/51147/30859/71167

 https://www.taxpolicycenter.org/briefing-book/what-options-would-increase-federal-
revenues

 https://blogs.worldbank.org/voices/4-ways-low-income-economies-can-boost-tax-
revenue-without-hurting-growth