External borrowings of the country have continued to rise over the last few years but the present government claims to have improved the situation somewhat during its tenure. Speaking in the National Assembly on 8th August, 2019, Minister for Economic Affairs, Hammad Azhar said that the incumbent government had returned dollar 8.39 billion foreign debt from August 18, 2018 to 30th June, 2019 while it obtained dollar 7.1 billion foreign loans during this period. Blaming the past government, he also added that the previous government of PML(N) had got loans on short-term during the last two years of its tenure which had to be returned. Total foreign debt of the country was dollar 73.1 billion on 18th August, 2019 and debt to GDP ratio had exceeded the limit during the tenure of past government. The PTI government has been making efforts to bring the debt-to-GDP ratio to the prescribed limit. Further, the government is focusing to enhance exports and foreign remittances. It retired foreign loans worth of dollar 9.5 billion during the past fiscal year which had never been done by any government in a single year. To a question, the minister stated that foreign exchange rate remained constant. Taking floor, Minister for Power Omar Ayub Khan revealed that total income occurred from Asset Declaration Ordinance, 2019 was Rs 57.7 billion, out of which Rs 8.1 billion was tax payments. The main purpose of the Ordinance, nonetheless, is documentation of the economy and not revenue collection.
The information on foreign loans as revealed by the government in the National Assembly shows that the situation is indeed dire and the previous government made no worthwhile effort to reduce the level of foreign debt to manageable levels. Obviously, such a situation had come to pass due to constant deterioration in the current account balance of the country and the authorities' reluctance to take appropriate measures to arrest or reverse the worsening trend with the result that aggregate foreign loans of the government crossed dollar 73 billion. Another unhealthy aspect was that the previous government did not care much about the maturity profile of foreign loans and borrowed short-term to meet immediate obligations. The debt situation, in fact, is so alarming that the IMF representative in Islamabad has openly said that though the sustainably analysis showed that CPEC loans are manageable yet the country's overall debt situation is not sustainable. The statement of the Fund representative is also corroborated by the SBP in its latest quarterly report which affirmed that "from the debt sustainability perspective, the country's repayment capacity weakened as debt servicing to foreign exchange earnings increased to 14 percent during July-March, 2019 from 9.7 percent in the same period of last year. Similarly, debt-bearing capacity measured in terms of public external debt-to-FX [foreign exchange] reserves ratio also deteriorated to 4.8 percent in March, 2019 from 4.1 percent in the same period of last year."
It may, nonetheless, be stated that the present government has made some sincere efforts to arrest this highly disturbing trend. The best and perhaps the only way to reverse this worsening trend is to earn a surplus in the current account balance of the country and repay the past loans as soon as possible. The PTI government has devalued the rupee substantially and undertaken tariff measures to boost exports and curtail imports. In addition, the government has issued Pakistan Bonao Certificates to attract foreign exchange inflows from expatriates. These measures have trimmed imports but have not helped in expanding exports because of small exportable surpluses and low productivity of the economy. While we appreciate the seriousness of the PTI government for the tough measures taken to improve the C/A balance and the external debt situation, Hammad Azhar's assertion that his government has returned dollar 8.39 billion and obtained only dollar 7.1 billion from 18th August, 2018 to June, 2019 does not indicate the full picture of the situation and is not as commendable as he has tried to claim. This is evident from the fact that FX reserves held by the SBP also declined from dollar 11.6 billion in June, 2018 to dollar 7.7 billion on 2nd August, 2019, indicating that C/A deficit amounting to dollar 3.9 billion had been financed through drawdown of reserves. If this amount was obtained through external borrowings to maintain the same level of FX reserves (as in June, 2018), the country would have obviously borrowed more than the repayment of external debt.