International Experts identified that there is a fundamental reason why emerging and developing countries amass external debt is lack of saving and investment. Countries with insufficient savings will approach the local or international debt market to borrow money for consumption smoothing and sustaining economic growth. Moreover, low government revenue, low levels of investment, and balanced budget deficits are additional reasons why developing countries approach the debt market. The Experts also recorded that the external debt of the government is the debt owed to holders of government securities like treasury bills, treasury notes, and treasury bonds. The government borrows by issuing bills, notes, bonds, and securities. The following are the two principal reasons for government borrowing: (1) expected government revenue falling short of expected expenditure and (2) paying off maturing government debt. Government external borrowing may have pessimistic also positive impacts on economic growth. Experts also found that industrialized countries are better than developing countries at using debt in a productive way. Hence, developed countries are better at managing the side effects of large debt like crowding-out effects, disincentive environment to investment, market and policy volatility, and capital moving out of the country because of concerns over currency devaluation. External debt has negative results because of poor management in developing countries, and these negative consequences are probable to offset any possible benefits from utilizing debt in more productive projects that will add value to the economy. In the developing countries Like Pakistan , as of May 31, 2022 statistics identified that Pakistan’s total external debt and liabilities worth to $126.07 billion of which $85.64 billion was on account of public external debt. The Government of Pakistan obtained $7.3 billion loan from the International Monetary Fund (IMF) during this period. Experts projected that the government of Pakistan will repay almost $95.4 billion from June 2022 to June 2059 based on existing commitments of the government. Off this amount, it is recorded that $82.0 billion will be repaid as principal while almost $13.4 billion will be repaid as interest. Total Rs12,345 billion loans were obtained through the government from 2019 to April 2022. Domestic loans are primarily obtained by auctions of treasury bills, Pakistan Investment Bonds/ Sukuks conducted by the State Bank of Pakistan (SBP) from primary dealers (commercial banks) and other financial institutions. The loans from external sources are obtained from multilaterals, bilateral and commercial sources, adding commercial loans, bonds and other loans are obtained by the Finance Ministry directly from the international market and international banks. The Total value of loans (deposits) received from China by the government during the last 3 years are $1 billion at 12 mL + 1 percent rate.
| Pakistan’s External Debt Servicing –Principal (Million US $ ) (Provisional) | ||||
|---|---|---|---|---|
| Detail | FY-21 | Jul-Sep 21 | Oct-Dec 21 | Jan-Mar 22 |
| 1. Public debt (a+b+c) | 9,152 | 1,051 | 2,885 | 3,764 |
| a. Government debt | 5,073 | 829 | 2,592 | 3,546 |
| b. To IMF | 1,079 | 223 | 293 | 218 |
| c. Foreign exchange liabilities | 3,000 | 0 | 0 | 0 |
| 2. PSEs guaranteed debt | 109 | 40 | 0 | 29 |
| Pasris Club | 0 | 0 | 0 | 0 |
| Multilateral | 0 | 0 | 0 | 0 |
| Other bilateral | 52 | 26 | 0 | 29 |
| Commercial loans | 58 | 14 | 0 | 0 |
| Sandak Metal Bonds | 0 | 0 | 0 | 0 |
| 3. PSEs non-guaranteed debt | 69 | 0 | 3 | 31 |
| 4. Scheduled banks’ borrowing | 12 | 2 | 1 | 0 |
| 5. Private guaranteed debt | 0 | 0 | 0 | 0 |
| 6. Private non-guaranteed debt | 846 | 113 | 341 | 123 |
| 7. Private non-guaranteed bonds | 0 | 0 | 0 | 0 |
| Total Long Term (1+2+3+4+5+6+7) | 10,188 | 1,206 | 3,230 | 3,947 |
In last I would like to mention here, foreign capital plays an important role in the development process of low-income countries. By and large developing nations fell short of funds necessary to spur the economic growth, side by side they are facing the down fall in the quality of governance. Low earned revenues and high government expenditure increase the reliance upon the foreign capital mostly in the form of foreign aid and external debt. Just the availability of foreign funds is not sufficient to stimulate the economic growth, there is a need of good governance along with batter quality of institutions that will act as a catalyst and improves the efficiency of capital. The Present government of Pakistan’s strategy to reduce its debt burden to a sustainable level includes adherence to run primary budget surpluses, maintain low and stable inflation, promote measures that support long-term sustainable economic growth and follow an exchange rate regime based on economic fundamentals. In addition, the Government is committed to ensuring fiscal discipline by revenue mobilization and expenditure rationalization. With a narrower fiscal deficit, public debt is projected to enter a firm downward path while the Government’s efforts to enhance maturity structure will improve public debt sustainability.