ISLAMABAD - Former governor of State Bank of Pakistan (SBP) Shahid Hafiz Kardar on Tuesday said that Pakistan’s annual gross financing requirement is up to $20 billion to $25b in next two years.

The gross financing requirement for next 2.5 years is around $50 billion, which would require debt rollover/rescheduling of $15 billion and additional debt of $35 billion, he said while giving presentation on ‘Current Challenges to the Economy of Pakistan’ at Swiss Embassy. The event was attended by large number of ambassadors and the members of the Swiss Business Council.

Pakistan had already managed financing for ongoing fiscal year with the help of friendly countries including Saudi Arabia, United Arab Emirates (UAE) and China. Saudi Arabia had given $3 billion, China $4 billion and UAE $2 billion so far in last one year or so. However, the government would have to make massive borrowing in next 2.5 years to meet that country’s annual gross financing requirement.

Former head of the central bank has also projected that Pakistan’s GDP growth would reduce; poverty and unemployment would rise besides increase in inflation rate. He projected that average annual growth of the country would be only 3 percent in next 2-3 years, which is not enough to create adequate job opportunities. This situation would build up social tensions and increase poverty in next couple of years, he warned. Kardar said that inflation would also increase in the months to come as it would touch 8 percent by the end of current year due to the impact of rupee depreciation and increase in electricity and gas prices. 

He criticized International Monetary Fund (IMF)’s programme, which had failed in its own areas of core competence fiscal and taxation. The IMF has been responsible for tax distortion in Pakistan. Tax dodgers were declared as non-filers and that happened on the watch of IMF, he said and added that the Fund always takes extreme/stringent position. In last programme, the IMF had given 12 waivers to Pakistan and now it is demanding prior actions for the new loan programme, he explained.

Talking about the long term challenges, former governor SBP said that Pakistan needs 8 percent economic growth to absorb additional 40 million youth entering labour forces in the next 35 years. The population is growing at 3.3 percent per annum but jobs provision is less than 1.4 percent per year. Meanwhile, the country also needs higher investment and savings rates. Pakistan’s investment to GDP is only 15 percent as against 30 percent of India and 38 percent of China. Similarly, savings to investment is 14 percent as compared to 30 percent of India and 45 percent of China, he added.

Kardar said that there is poor revenue mobilization in Pakistan, as the tax to GDP is only 13 percent. Average income tax paid in fiscal year 2016-17 was around Rs21,000. There are as many as 3.2 million commercial electricity connections in Pakistan but only 12500 wholesalers and retailers are filing returns.

He said that macroeconomic management remained unchanged during the last 50 years and consequently the fundamental. He said that this resulted in near crisis situation every few years in the form of fiscal and external deficit. He said that the Rs 100 billion fiscal deficit has an Rs 40 billion impact on external account. Pakistan was luckily so far that it never went through a full blown crisis of sovereign default. He said that the country was taking expensive commercial debt but much cheaper and longer maturity debt was available from World Bank, ADB and IMF for undertaking much needed structural reforms.

He also highlighted skewed priorities that included expenditures management, losses of public sector entities (PSEs), nature subsidies, intra-provincial physical infrastructure and debt of it.