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Manipulating data to give a false sense of prosperity to the people of Pakistan has been the hallmark of the outgoing regime. Whenever manipulation of data became difficult, the finance minister of the regime mysteriously changed the definitions of the variables and thus made them non-comparable with the past. There are several key macroeconomic variables whose definitions were changed shamelessly. The one under discussion is the definition of external debt.

What has happened to the state of external debt and liabilities in Pakistan over the last seventy years? The factual position about the external debt and liabilities is summarized in the following Table.


Period Stock (end-June) Addition Years


1947-2007 $ 40.3 billion $40.3 billion 60

2008-2013 $60.9 billion $ 20.6 billion 5

2014-18 $ 95.0 billion* $ 34.1 billion 5


Estimated to be at end-June 2018 Pakistan added $40.3 billion external debt and liabilities during the first 60 years of its independence; it added almost $21 billion in the next five years but, to our horror, the outgoing regime is likely to add $ 34 billion in the last five years. In short, the country accumulated external debt and liabilities to the extent of $40 billion in 60 years but added almost $55 billion of debt in the last ten years. It speaks volumes about the economic management of the two previous political regimes. More importantly, the debt situation is going to aggravate even further during the current fiscal year (2017-18); more on this will be discussed later in the paper.

Myself and a few other independent economists wrote extensively on the subject in the recent years to educate the people of Pakistan. In 2016, I wrote an extensive article under the title "Rising Debt: A Threat to National Security" which generated considerable interest among economists and others who have interest in Pakistan's economy. A series of articles on external debt were written by some influential independent economists thereafter.

These articles certainly unnerved the then finance minister (Ishaq Dar) of the country who reacted in a hostile manner by writing a lengthy article on Pakistan's debt (see Business Recorder, February 01, 2017). He presented his own narrow definition of debt which was different from the standard ones. He presented various debt indicators based on his own narrow definition and showed that Pakistan's debt burden has infact been reduced. In his effort, Dar was ably assisted by the senior staff of the ministry of finance. What is indeed surprising is that those who partnered with Dar in changing the definition of debt and also defended him vociferously arenow criticizing him for ruining the economy through their writings in the print media.

Let me now turn to the definition of debt. It is a well-known fact that Pakistan faced serious debt crisis in the 1990s. On January 29, 2000, the then government constituted a high powered Debt Reduction and Management Committee (henceforth the Committee) to assess Pakistan's debt situation, analyze the causes for the rise of the debt, ascertain its impact on Pakistan economy, provide recommendations to bring debt under control, and most importantly, suggest the proper definition of both public and external debt which were consistent with global practices.

After extensive deliberation the Committee submitted its Report which, among other things, provided definition of external debt. In the absence of Parliament, the Committee extensively consulted with all those across the country who had interest in the subject. The Report of the Committee was presented and approved by the Cabinet on February 15, 2001. The Ministry of Finance reconciled the debt numbers with other organs of the state to arrive at one number of debt. Since Pakistan was under the IMF Program, the debt numbers were also made consistent with the IMF and the World Bank.

Let me now turn to the fact as to how the then finance minister in connivance with senior officials of the ministry changed the definition of debt mysteriously. It is well-known that the present regime relied heavily, rather exclusively, on borrowing to run the economy. The table at the outset is a testimony of the style of economic governance of the outgoing regime, particularly of the finance minister. Realizing the fact that the pace of borrowing could not be slowed and that he was continuously under pressure from our writings on the subject, he then thought it right to change the definition in connivance with the senior officials of the ministry. His change of definition was never discussed in the public-seminar/conferences, print or electronic media. This change of definition was never discussed in the parliament as well. He changed the definition of debt through amending the Fiscal Responsibility and Debt Limitation (FRDL) Act 2005 silently through the Finance Bill during the Budget. Changing the definition of debt silently speaks volumes about the true intension of the then finance minister.

Myself as well as many other independent economists have serious reservations over the definition of external debt of the former finance minister. His definition is not aligned with IFIs' definition. We have been forecasting external debt on the basis of standard definition which was disliked by the former finance minister. Following table will highlight the difference between the two definitions.

As shown in the Table, the finance minister has defined external debt too narrowly. As opposed to finance minister's definition of debt ($62,539 million), the external debt and liabilities stood at $83,091 million in 2016-17. The same number is reported by the IMF and the World Bank for the year 2016-17. The understatement of external debt is over $20.5 billion. We should realize that the pool of foreign exchange reserve is the same. Both the government and other sectors will make payment for their debt servicing from the same pool of reserves. The higher will be the debt the more pressure will be on foreign exchange reserves which will force the government to borrow further to keep the reserve at certain level. It is for this reason that all external debts, whether public or otherwise, matter for the country.

Where do we stand today as far as external debt and liabilities are concerned and where are we heading? The readers would recall that I wrote an article under the title "An Update of Balance of Payments",published in the Business Recorder on February 13, 2018; in the said article, I predicted that our current account deficit for the current fiscal year (2017-18) would be $18 billion and our external debt servicing would be $8.5 billion. This leads to our dollar requirement for the year amounting $26.5 billion. Pakistan is likely to receive external flows from various sources to the extent of $14.0-14.5 billion. This will leave a financing gap of $12.0-12.5 billion during the year. Accordingly, Pakistan's external debt and liabilities were projected to rise to $95-96 billion by end-June 2018 from $83 billion in the previous year.

To my surprise, the State Bank of Pakistan has released the debt numbers for the period July - March 2017-18 which amounted to $91.8 billion. Thus, our external debt and liabilities by end- March 2018 stands at $91.8 billion. This gives confidence to my forecast of $95-96 billion by end-June 2018. I am grateful to both the Ministry of Finance as well as the SBP for validating my forecast every year. Our foreign exchange reserves as on May 4, 2018 stood at $11.2 billion, which,after adjusting forward cover of $6.1 billion, stands at $5.0 billion only. This is what I have been telling all around but no one paid any heed.

This government will leave the economy of Pakistan in shambles by May 31, 2018. In particular, it has already made external balance of payments extremely fragile. This is indeed a deliberate attempt to weaken the economy to the best they can with its serious implications for the country's national security. This will be the greatest challenge for the caretaker government as well as for the new government to address such a horrendous challenges of debt, deficit and economic growth. How can a country revive its economic growth and creates employment in the midst of serious debt crisis?

There are no two opinions about the state of the economy today. The present regime has severely damaged the economy and its key institutions. It has made Pakistan highly vulnerable to external shocks (read this as rising oil and commodity prices along with rising interest rate phenomenon) and drowned the country under debt. In the last five years, the only policy instrument that the two finance ministers of the regime have used is "borrow and borrow right and left. Let the new government face the music".

While Dar accused me and my fellow independent economists of committing disservice to the nation, there cannot be more disservice to the nation by drowning the country in debt.


Pakistan's External Debt and Liabilities (Million $) 2016-17

Finance Minister's Definition Amount Standard Definition Amount


A. Public External Debt (1+2) A. Public External Debt 61,357

1 Government External Debt 56,430 1. Government External Debt 56,430

_ Long Term (> 1 year) 55,547 _ Long Term (> 1 year) 55,547

_ Short Term (< 1 year) 882 _ Short Term (< 1 year) 882

2. IMF Debt 6,109

2 IMF Debt 6,109 3. Foreign Exchange Liabilities 3,564

B. Public Sector Enterprises (PSEs Debt) 2,706

C. Banks 4,519

D. Private Sector Debt (Non - Guaranteed) 6,505

E. Debt Liabilities to Direct Investors -

Intercompany Debt 3,258


Total 62,539 Total 83,091


(The writer is Principal & Dean at NUST School of Social Sciences and Humanities, Islamabad. Email: [email protected])

Copyright Business Recorder, 2018

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