Whether one is an avowed critic of the economic policies of the government or an anodyne appraiser of their impact, it is hard to take an issue with the claims repeatedly made by Finance Minister Ishaq Dar in regards to the success that has been achieved in reviving the economy and addressing the maladies afflicting it. When the PML-N government was installed in May 2013, the economy of the country was on the verge of collapse. The country faced a severe energy crisis. Economic growth was below 3%, inflation was at double digit, interest rates were high, budget deficit was at 8.8% of GDP, investments were abysmally low, foreign currency reserves stood at the lowest ever level and the country faced the prospect of an ignominious default on IMF loans.
Three years down the line the profile of the economy is quite encouraging. The fact that the budget deficit, which is considered as mother of all economic woes, has been brought down from 8.8% of GDP in 2013 to 4.3% in 2015-16 and is likely to be further pulled down to 3.8% by June 2017, speaks volumes about the efficacy of the macro-economic and structural reforms introduced by the government. Expansion in the tax-net, pulling down inflation to a single digit, increase in credit to private and agriculture sector, gradual enhancement in development funding, increased foreign remittances and the foreign exchange reserves touching the phenomenal level of $21 billion, are all credible indicators of the health of the economy. These factors coupled with the fiscal discipline not only have helped in bringing down the budget deficit but also contributed to reducing the debt to GDP ratio from 64% of GDP in 2012-13 to 63% at the end of 2014-15, besides managing the debt issue amicably. It is further aimed to be reduced to 60% during the next three years.
It is pertinent to mention that the previous government during its tenure of five year contracted a net debt of Rs.8515 billion while the present government has raised a net debt of Rs. 4189 billion. The reason for low level of borrowing by the government was that it kept the fiscal deficit under control trough enforcement of fiscal discipline. Present government reportedly repaid $10 billion of external debt till end of December 2015, which mainly related to borrowings by the previous government. It is encouraging to note that despite this heavy repayment, the foreign exchange reserves have reached a phenomenal figure of $21 billion.
The rationale and the need for borrowing from internal and external sources including IMF as well as raising money from the international financial market through issuance of Euro bonds as explained by the Finance Minister , notwithstanding the flak of the detractors of the government, is quite convincing. The country undoubtedly was on the verge of default in regards to loans taken from IMF by the previous government and the PML-N government had no choice but to immediately seek Extended Fund Facility of $ 6.6 billion from it to avoid the emerging disaster, which it was able to negotiate successfully. It also needed money for its developmental needs and other unavoidable expenditures. With persistent budget deficit the government perforce had to resort to internal and external borrowing. However the borrowing has been well managed as compared to the loans taken by the previous government which had tremendously increased the debt liabilities of the present government such as debt servicing.
The response that the Euro bonds received, in many ways was also a confirmation of the health of the economy and its ability to absorb foreign investments. For the five year bonds the investors came from all geographical regions. Nearly 59 per cent were subscribed in US, 19 per cent in UK, 10 per cent in other European countries, 10 per cent in Asia, 7 percent by hedge fund and 1 per cent by Insurance companies and pension fund. In respect of 10-year bonds also most of the money came from US. This outcome was a result of the strenuous and consistent efforts of the economic managers of Pakistan to showcase the marked improvement in economic indicators and the success of the economic reforms introduced by government, at all international economic forums.
An ideal and preferable situation for the managers of the economy would be non-reliance on borrowed money. However, for developing economies like Pakistan beset with host of economic aberrations, this is nothing but a dream. Changing economic profile of the country, is indeed a challenging, complex and daunting task due to its linkages with myriad of internal and external factors which are sometimes beyond the control of the government. Borrowing from internal and external resources is an indispensable imperative for the economies like Pakistan. But what is important is that the money borrowed should be gainfully invested so that the repayments could be made from the resources that are generated by those investments and the residual money can also be diverted to productive channels. Borrowing for the sake of repaying debts can put the economy under further strain. The economy of Pakistan is well on its way to a sustained development and in view of the future projections it can be safely inferred that Pakistan will be in a comfortable position in the future to pay back these loans as well as to reduce its dependence on borrowed money. The fact that Pakistan has said good-bye to IMF after fulfilling its obligation under the current arrangement, leaves no doubt in regards to amicable management of the public debt and the revival of the economy, which has been endorsed by the international money lending and evaluating agencies.
CPEC has undoubtedly opened up infinite economic possibilities for Pakistan as well as the entire region. The development of the infrastructure under this mega-economic initiative will change economic profile of Pakistan on perennial basis, convert it into a hub of economic activity for South Asian and Central Asian region besides creating a win-win situation for both Pakistan and its all weather friend China which has a great stake in the completion of the CPEC to realize the dream of its leadership to revive the old silk route under the ‘ One Belt, One Road’ vision given by Chinese President Xi Jin Ping. The energy projects under CPEC which are already on the roll are likely to be completed by the end of 2018, will not only help the country to tide over the current energy crisis in the country but would also produce enough energy for future industrial growth in the country. The inference one can safely draw from all the foregoing facts is that the country due to some prudent economic management and government decision to become part of the CPEC, is well poised to tread the path of sustained economic development and prosperity.