Pakistan being an Islamic country is on the verge of getting into a un-Islamic debt trap. This is due to excess spending on defense, unethical way of treating fellow citizens. We should realize that what sins the federal government is doing to resolve the issues.
Interest payments (for domestic and foreign) loans and defense spending costed $ 5.95 billion of federal government’s tax revenue i.e. approximately collection of $ 7.82 billion in the first quarter of the current fiscal. This leaves very small fiscal space for other state expenditure. More so out of the three revenue sources, only the Federal Board of Revenue’s (FBR) tax revenue has shown growth during this period i.e. July – September. It seems Pakistan is going into a un-Islamic debt trap.
To service, the debts along Pakistan has spent $ 4.22 billion which is around 54% of the federal revenue collections during the period of July – September. According to the press quarterly report released by the Finance Ministry on Wednesday.
$ 4.22 billion spent on payment of interests on loans was in addition to taking loans to retire loans. The federal government has taken a loan of $ 1.42 billion to pay back a loan of $ 1.35 billion. The increase in interest was by 7.5%when compared with the debt servicing cost in the same period of the previous fiscal year. $3.96 billion or (PKR) Rs 417.6 billion was also spent on domestic debt servicing and another (PKR) Rs 27.8 billion or $ 0.26 billion was paid on foreign debt servicing during this period.
In the current fiscal budget for the year 2017-18, the federal government has earmarked $ 12.92 billion for domestic and foreign debt servicing. It may be noted that the federal government has already consumed 1/3rd of this it the first quarter, suggesting that there will be slippages.
The central government’s debt and liabilities stand at $202.87 billion or (PKR) Rs 21.4 trillion by ending June 2017. This is about 68% of the total National Output. Thus with our present National Output, our loans are so many that repayment of loans becomes unviable. So the federal government is taking newer loans and foreclosing older loans. However, the lending market monitors such moves and starts increasing interest rates, at present the rate of interest is much higher for Pakistan. Debt Trap, a scenario in which a borrower is forced to re-borrow because they can’t afford the scheduled payments on the principal of a loan.
In the west, individuals get into the credit card debt card spiral where they take one loan to close an older loan at a higher rate. Thus, getting into what is called debt trap. Pakistan as of now entered into such a debt trap. As per our constitution, we are an Islamic country. Islam does not permit loan with interest unless the interest taken is for charity. No financial institution from which we have taken loans is giving the interest we paid to charity. Hence it is un-Islamic Holy Quran Chapter 2 Surah Baqarah verse 274-276. By taking these loans on our behalf the leaders are not only doing haram for them but also making us party to their sins.
CPEC is excellent for China and Pakistan both but is coming up at a time when it is not very rosy for Pakistani economy. External debt of $75.747 trillion is not a worrisome picture for Pakistan’s economy but when taken with the foreign currency reserves which decreased to $21.019 trillion. Thus once interest rates are increased in the US, the situation will become quite worrisome when we will not be able to pay interests on the loans taken.
The Government of Pakistan spending on developmental activities is a mere $0.95 billion or (PKR) Rs 100.5 billion which is about 10% of the total annual budget. The budget catered more than double the amount. Thus developmental activities have been slow by 50% in Pakistan in the first quarter.
In this expenditure, a significant portion has gone to parliamentarian schemes. These schemes are welfare measures and not revenue generating hence, no returns will be available on these schemes.
Thus resulting in widening of the budget deficit to $4.63 billion or (PKR) Rs 488.4 billion or 1.4% of the GDP in the first quarter. However, the budget deficit stood at mere 1.2% of the GDP due to the cash surplus of $ 0.49 billion or (PKR) Rs 51.5 billion, generated by the four provinces as per the summary given.
Though the FBR’s tax collection surged to $ 7.82 billion or (PKR) Rs 824.5 billion a jump of about 20%, the collection of other taxes stood at $ 0.57 billion or (PKR) Rs 60 billion during this period. This is primarily due to the loss of revenue in CPEC corridor where Chinese are collecting the revenues. Thus, the overall tax collection stood at $ 7.25 billion or (PKR) Rs 764.8 billion in the first quarter.
As we already know the Khyber Pakhtunwa province posted a loss of more than 50% revenue i.e. $240 million in the last fiscal year. This year it is expected to lose much more revenue. Due to near-zero development and increase in insurgency the provincial government is unable to sell timber stocks to raise money for the past two fiscal years.
The defense spending in the first quarter stood at Rs 1.72 billion i.e. 22% of the total federal revenue. So combined expenditure for both debt servicing and defense stands at 76% of the total federal revenue.
Non-tax collection stood at only $ 0.85 billion or (PKR) Rs 90 billion. This is again down by 1/10th of the collection. This is a mere 9% of the budgetary estimates, thus the government will not be able to achieve the target. This again can be attributed to the agitation by the Clerics at Faizabad. In the name of religion backed by Pakistan Army, the clerics chocked all the consumption routes across the country. However, to cover up the report has indicated that this figure is due to the non-disbursement of Coalition Support Fund by the United States.
This trend suggests that the government will miss the target to reduce the budgetary deficit to 4.1% of the GDP. The federal government’s expenditure increased by 14.7% when compared to the previous financial year for the same period. The pace of expenditure was much higher than what the Finance ministry had expected.
Another related article titled as Crumbling Pak Economy & Political Instability is here
With all this in mind, the federal government will have to soon realize if it really has to bend and follow what the Pakistan Army is dictating. The Army recently had supported and instigated the agitation in Faizabad. This not only resulted in the loss of revenue in both tax collection and also by payment of demurrages to the agitators. Moreover, in the western provinces Army has been engaged in brutal operations against its own citizens. This has risen to such an extent that they have rebelled against our own country.
Pakistan Army will surely get its cake after its indirect arm-twisting of the civilian government in-spite of the un-Islamic debt trap coming up as a burden.
People in the country are high and dry but Pakistan Army is going to buy ultra-modern arms to defend whom?
If the country becomes a un-Islamic debt-ridden, then who will pay the Pakistani Army?
We the people of Pakistan have to decide if we want to be an independent and peace-loving Islamic state or be debt-ridden under military control without freedom. Under Army rule, we will lose the independence of everything. We can see the recent case of Imaan Hazir Mazari, daughter of Pakistan Tehreek-e-Insaf (PTI) leader Shireen Mazari has gone ‘missing’ from the social media site Twitter. She just spoke against Pakistan Army. She was also a Pakistani girl but just dared to speak against Pakistan Army.
As trends around the world are going around, it’s only a matter of time that Pakistani Army once again overthrows the civilian elected government and comes back to power.
The author is a student of Finance at Lahore University and has researched on “un-Islamic debt trap” in depth for the past three years.