In this article, he has written things which are positive for Pakistan and not necessarily in favor of the present government.
Good news, bad news
Sunday, June 20, 2010
Dr Farrukh Saleem
There’s good news and there’s bad news. The first piece of good news is that our public debt, internal plus external, which stood at 79.8 per cent of our GDP in FY-2002, has now come down to 55.5 per cent of GDP. Second, our external debt and liabilities, which stood at 36 per cent of our GDP in FY-2004, have come down to 30 per cent of GDP. Third, per capita income has gone up from $669 in 2003-04 to $1,046 in 2008-09; a healthy 56 per cent jump over five years.
To be certain, our government has been taking on additional debt — both external as well as internal — but the rate of economic growth, over the past decade, has actually been faster than the rate of debt growth. As a consequence, accumulated debt as a percentage of GDP came down — rather sharply so.
To be sure, between 1997 and 2001 almost all our macroeconomic indicators had sunk down into the pit. In 2000-01, GDP, for instance, recorded a measly growth of two per cent. The following year GDP grew by 3.1 per cent and then 4.7 per cent in 2002-03, 7.5 per cent in 2003-04 and finally peaked out at nine percent in 2004-05 (the year that Pakistan recorded the 2nd highest GDP growth on the face of the planet).
Now, the bad news. Debt grew the fastest when Nawaz Sharif was the prime minister. Debt, as a percentage of GDP, shrunk the fastest when General Musharraf was at the helm of affairs. Our external debt and liabilities, as a percentage of GDP, shrank for at least four years starting 2004 and bottoming out in 2008. Since 2008, the curve has once again turned in the wrong direction — and that too rather steeply (between 2008 and 2009, external debt alone has gone up by a dreadful $3 billion, or $8 million dollars a day).
As far as public debt is concerned, things are not as bad as they were ten years ago. As far as external debt is concerned, things are much more manageable now than they were ten years ago. But, if all the additional debt that has been taken on over the past year is any indication then things are heading down the gutter faster than an iron ball through a pool of water.
Public debt is both good and bad. Most — if not all — governments need debt to fill their financing gaps and to meet their developmental objectives. If debt is used to increase productive capacity then debt accelerates economic growth — the good part. If debt, on the other hand, is mismanaged then it increases interest rates, scares away investors and impedes economic growth.
In short, our current public debt scenario isn’t all that bad. Pakistan’s public debt at 55 per cent of GDP actually compares favourably with India’s 58 per cent of GDP and Sri Lanka’s 78 per cent of GDP. At the other end of the spectrum are countries like Russia at 6.8 per cent of GDP, Hong Kong at 14.5 per cent and China at 15 per cent. So we have both good as well as bad news but the problem is that ‘good news crawls on its belly while bad news has wings’.
The writer is a columnist based in Islamabad. Email: firstname.lastname@example.org