ISLAMABAD - Pakistan’s external debt level would increase to $120 billion in next two years due to the government’s continuous borrowing from International Monetary Fund (IMF) and friendly countries like China, Saudi Arabia and United Arab Emirates (UAE).

Renowned economist and former finance minister Dr Hafeez A Pasha has projected that external financing requirement over the three year period would add up to $66 billion. “The primary sources of financing continuous to be borrowing, both public and private. This will necessitate a relatively large size of the IMF program and higher level of support from countries like China, UAE, and Saudi Arabia,” Pasha said in his book titled ‘Growth and Inequality –Agenda for Reforms’. He estimated that level of external debt is expected to rise from $96 billion in 2017-18 to $120 billion by 2020-21.

Pasha also projected that unemployment and poverty would also increase in the years to come. There is an increase likely in the number of workers unemployed as much as 0.9 million in ongoing fiscal year 2018-19 and another 1.2 million after 2018-19 to 2020-21. Consequently, the unemployment rate might jump from 6.3 percent in 2017018 to 7.2 percent in 2018-19 and to 8.3 percent by 2020-21. A similar depressing projection is likely in the case of incidence of poverty. The incidence of poverty is expected to rise by 3.2 percentage points in 2018-19. In other words, the number of people below the poverty level could increase by over 6 million. Therefore, it rises by 0.6 percentage points by 2020-21.

External financing requirement over the three year period would add up to $66 billion

Former finance minister also noted that Pakistan’s GDP growth is expected to fall sharply from 5.8 percent in 2017-18 to 3.8 percent in ongoing fiscal year 2018-19 due to the very contractionary stance of policies. There is some recovery in 2019-20 to 4.2 percent in next fiscal year 2019-20. Finally, in 2020-21 the economy is expected to get back to the trajectory of a relatively high growth of 5 percent and above in subsequent years. As expected, private investment is real terms is expected to fall by almost 6 percent in 2018-19, given the spike in interest rates and heightened risk perception.

Pasha estimated that inflation rate is expected to rise substantially in 2018-19 to a double digit rate of 12percent from the very low rate 4 percent in last fiscal year 2017-18. This is primarily due to the large devaluation in 2018-19. Gradually, inflation rate is projected to come down to 6.4 percent by 2019-2020. The significant outback in the size of the national Public Sector Development Programme (PSDP) of 25 percent coupled with economy is current expenditure and incremental fiscal efforts are expected to stabilize the public finances. The   projected fiscal deficit is down to 5.8 percent of the GDP in 2018-19 as compared to 6.6 percent of the GDP in 2017-18. Therefore, it would continue to decline at a modest rate to 5 percent of the GDP by 2020-21.

The economist has also proposed the government to revive the economy by improving the agriculture sector. The terms of trade of agriculture must not be allowed to deteriorate. This would require the restoration of minimum support prices, in particular, of cotton and withdrawal of this support from sugarcane. Also, the price of fertilizer must be kept unchanged of its level in 2017 even if this necessitates a higher subsidy. The credit availability for the agriculture purposes must be enhanced, especially for small farmers. 

Former finance minister recommended the government to focus on manufacturing sector, enhancing private investment, public development spending, and privatization programme and employment generation strategy in next few years.