Can Pakistan come out of Debt?

By
Dr Anwar Shah
School of Economics,
Quaid-i-Azam University Islamabad
 Outline
• Profile of Total Public debt
• Fiscal deficit and current account deficit
• Solutions
• Conventional
• Non conventional
• Conclusion
Dr Anwar Shah School of Economics QAU 2
 Compositions of Public debt in Billion
• Total Public debt in 2021= 44366 (67 % of GDP = 66950 B=$300 B)
• Internal = 28076 (41% of GDP)
• External = 16290 (24% of GDP)

• Per Fiscal Responsibility and Debt Limitation Act, 2005 amended in

June 2017, "Total Debt of the Government" means the debt of the
Government (including the Federal Government and the Provincial
Governments) serviced out of the consolidated fund and debts
owed to the International Monetary Fund (IMF) less accumulated
deposits of the Federal and Provincial Governments with the
banking system.
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 Reasons of Public debt
• Fiscal/Budget deficit
• Current Account deficit

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 1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Budget deficit

2001
Dr Anwar Shah School of Economics QAU

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
5
 Budget of 2021-22
• Total expenditure: 8487
• Total Revenue : 7909
• Share of provinces: 3412
• Net Revenue: 4497
• Deficit: 3990

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 Budget of 2022-23
• Total expenditure 9502
• Total Revenue 9004
• Share of provinces: 4100
• Net Revenue: 4904
• Deficit: 4598

Dr Anwar Shah School of Economics QAU 7

 Implications
• Domestic debt

Dr Anwar Shah School of Economics QAU 8

 1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993

Domestic Debt
1994
1995
1996
1997
1998
External Debt

1999
2000
2001
Dr Anwar Shah School of Economics QAU

2002
Public Debt

2003
2004
2005
2006
2007
2008
2009
Public (Domestic & External) Debt Profile

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
9
 The Trends in Total Public debt (domestic and external) across Regimes (in PKR Billion)
Regime Start Year End-Year Public Public Total % increase % increase per
debt at debt at Increase during year during
start Year End-Year during regime regime
regime
PPP-1st 1971 1977 30 97 67 223% 37%
Zia (Army) 1977 1988 97 523 426 439% 39%
PPP-2nd 1988 1990 523 711 188 36% 18%
PML(N)-1st 1990 1993 711 969 258 36% 18%

PPP-3rd 1993 1997 969 1995 1026 105% 26%

PML(N)2nd 1997 1999 1995 2946 2951 147% 73%

Mush (Army) 1999 2002 2946 3636 690 23% 11%

PML Q 2002 2008 3636 6127 2491 68% 13%
PPP-4th 2008 2013 6127 14292 8165 133% 26%
PML(N) 3rd 2013 2018 14292 24953 10661 74% 14%
PTI 2018 2022 24953 44366 19413 77% 19%
We ignore the time of caretaker governments
Data Source: Economics Survey of Pakistan, 2022-23
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Current Account Balance

Dr Anwar Shah School of Economics QAU 11

 Trade Balance in Million USD 1996 to 2022
1996 1997 1998 1999 2000 2001 2002 2003
-294 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
-359
-1867 -2085 -1412 -1268 -1,257
-3704 -3140
-4,450
-6351
-8,321
-9,572
-10,427
-11,452
-12,540
-14,834 -15,355
-15,652
-16,590-17267
-19146
-21109

-25998
-28634
-30903

-39598

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 Workers Remittances in Million USD
31238
29450

23131
21740
199171935119914
18721

15837
13922
13186
11201
8906
7811
6451
5496
4237 3871 4168 4600
2390
14611409 1490 1060 983 1086
1997

2022
1996

1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
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 CA Balance 1996 to 2022

4,070
1338 1,811
214

-513
-1143
-1921 -2429 -1,534
-2,496 -2,815
-3,130 -2,820
-3846
-4575 -3,946 -4,658 -4,449
-4,990 -4,961
-6,878
-9,261

-12,270
-13,874 -13,434

-17,406
-19,195

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 Implications
• External debt

Dr Anwar Shah School of Economics QAU 15

External Debt in Million USD (30 March,
2022
87359

34513

15656
9708 8770 11712
7000

Dr Anwar Shah School of Economics QAU 16

Sources of External Debt in Percentage of
total (31, March, 2022)
39.51

17.92
13.41
11.11 10.04
8.01

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 Solutions
• Rethinking rights and responsibilities of federation and
provincials in 7th NFC Award
• Dropping Policy rate and delinking policy rate with inflation
• Government has created a task force on 22 July, 2022. Maluan
Taqi Usmani sb is its member.
• This task force should study and after some adjustment
recommend the implementation of these reports

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 Name of the two Reports
• 1991: REPORT OF THE PRIME MINISTER’S COMMITTEE ON SELF
RELIANCE Government of Pakistan, April 1991 under the
chairmanship of Senator Professor Khurshid Ahmad with 9 member
Iqbal Z Ahmad, Syed Yawar Ali, Bashir Jan Mohamand, Tahir Zahoor
Ahmad, Qazi Alimullah, Dr A.S Mufti, Dr Waqar Masood Khan,
Shaukhat R. Mirza, Dr Arshad Zaman
• 1997: REPORT ON ELIMINATION OF RIB by the commission for
Islamization of Economy, Government of Pakistan August 1997
under chairmanship of Senator Raja Zafar ul haq with 4 members
Maluana Muhammad Taqi Usmani, Dr Arshad Zaman, Dr Khalid
Muhammad Ishaq, Zulfiqar Khan

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Notifications of task
force
(22 July, 2022

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1991: REPORT OF THE PRIME MINISTER’S COMMITTEE ON SELF RELIANCE

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1997: REPORT ON ELIMINATION OF RIB

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1997: REPORT ON ELIMINATION OF RIB

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 Main Points of both Reports
• Both reports suggest passing of Act (Self Reliance act 1991, Prohibition of
Riba act 1997)
• All debt and interest will become due by the commencement day of the
act. This is like freezing of all debts by some date
• External debt: Renegotiate on non-interest basis with all parties
• Internal debt: Create a fund with SBP and issue certificate equal to amount
of debt to each creditor. This will be like a large pool and each will
withdraw from this pool per their outstanding amount
• Create mutual fund where all creditors are given shares per sharia
compatible mode. This will be like asset-based fund and each will have
share in it.
• Inter government debt be written off (both or interest payment)
Dr Anwar Shah School of Economics QAU 24
 Some additional solutions
• No borrowing from commercial banks for current expenditure
• All financing on Islamic mode for developmental expenditure
(Asset creation)
• Injection of money by SBP via new asset backed proposals by
commercial banks on participation base

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 A question?
• Will Government run out of resources after passing such acts?
• No
• let us analyze the available funds in an economy
• Funds available for free (Charity)
• Fund available for soft loan (Qarze Hassan)
• Fund available for investment on profit/loss basis (Risk
sharing)
• Funds available for loan on interest (Risk transfer)

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 Available funds for charity
• 2013-14 Study: This was conducted by Pakistan Centre for
Philanthropy, which shows that Pakistanis give around PKR 240
billion (more than $2 billion) annually to charity.
• https://ssir.org/articles/entry/philanthropy_in_pakistan
• 2018 Study: Pakistan one of the most charitable nations in the
world
• https://tribune.com.pk/story/1664949/pakistan-one-
charitable-nations-world-reveals-stanford-study

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 Available funds for charity
• 2021 study:
• Eight in ten Pakistanis reported giving charity during the last year,
according to Executive Director Pakistan Centre for Philanthropy
(PCP), Shazia Maqsood Amjad. She mentioned these stats during
the virtual launch of the Pakistan Giving Index (PGI) 2021.
• The headline finding was that almost every adult Pakistani spends
an average of Rs. 10,000 annually on charity for religious reasons.
• https://propakistani.pk/2022/03/09/8-out-of-10-pakistanis-gave-
charity-during-2021-study/
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 Available funds for charity
• How much funds for charity is available?
• Let us see
• Total Families: 37 million
• Total Poor families: 9 Million
• Total non poor families: 28 million
• Total willingness to donate per family= 3600 per year
• Total = 100.8 billion

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 The potential of Zakat collection
• There is almost 300,000 mosques for 37 million HH (Need
double check)
• If we assume 20 percent mosque in poor population and the
rest 240k mosque just collect 500,000 (half million) zakat per
annum = 120 billion (compare this with 2022 collection of 8 billion
only by federal government from Banks saving account)
• A study (Source: Estimation by Dr Salman) show that the total potential
of zakat is 1993 billion (1.99 trillion) in Pakistan
• PSDP in 2022-23= 900 to 1000 billion

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 Public Funds for Poverty alleviation program

• BISP funds in 2021-22: RS 171.88 billion

• Pakistan poverty alleviation fund (PPAF) in 2021-22: 14 billion

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 Available funds from Overseas Pakistani
• 11.7 million Pakistani nationals are working around 50
countries as of December, 2021. (Source: Ch.12 ES:2021-22,
Table 12.3)
• If we request them to send 100 dollar more per year this
become 1 billion dollar (compare it with 2 billion/year by IMF
program)

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Funds available for Soft loans

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 Soft loans via Electricity bill
• Total non-poor households: 28 millions
• Total installed meter per family: 28 million
• Total domestic debt: 29 Trillion
• If each consumer is requested for soft loan in electricity bill of
merely 3000 per month for a year, which should be returned
next year and adjusted in electricity bill, then government can
raise 1 trillion (28*36,000= 1008,000 million)
• Note: This data need double checking by students
Dr Anwar Shah School of Economics QAU 34
 Soft loans from 10 percent of Population
• If 10 percent (22 million) of the total population (224 million) give 20,000
loan per month
• 22 million * 20,000 = 440 billion ---------(per month)--You can double check
• 440 *12 = 5280 billion (5.28 trillion)-----(per year)-- You can double check

• Our total this year budget deficit is = 4.60 trillion

• Total expenditure 9502
• Total Revenue 9004
• Share of provinces: 4100
• Net Revenue: 4904
• Deficit: 4598
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 Soft loans and Deposits in Commercial Banks

• Total demand deposits: 7,374 Billion (7.374 trillion)

• Source: Table 1.7a (Quarterly Compendium: Banking statistics, 2022)

• If customer allow 20 percent of these demand deposits as soft

loan, this become 1.637 trillion

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Dr Anwar Shah School of Economics QAU 37
 Conclusion
• Public debt is multiplying due to twin deficit
• Conventional and non conventional solutions exist for debt
retirement
• There is a need of renegotiation of NFC and implementation of two
reports (self reliance Act and Prohibition of Riba Act)
• There is huge potential of charity/Zakat and Qarze Hassan which
we can utilise through efficient institutional structure for
minimising the expenditure side of government and helping them
to raise funds.
• Students can explore the potential of risk based funds

Dr Anwar Shah School of Economics QAU 38

EC-423 Economy of Pakistan by Dr Anwar Shah School of
Economics, QAU
 Thanks &
Allah Hafiz
EC-423 Economy of Pakistan by Dr Anwar Shah School of
Economics, QAU