Pakistan’s yearly consumer inflation rate stood at 29.7 per cent in December 2023, which means that those who earned Rs100,000 per month needed Rs 129,700 to maintain their lifestyle at a year-ago level.

Obviously, most individuals and households had no opportunity to make the additional Rs29,700. Inflation numbers don’t tell us about their sufferings, let alone the sufferings of the jobless. We come to know about those sufferings in our daily interactions with such people.

According to the International Labour Organisation, there were no less than 5.6 million unemployed people at the end of December 2023.

The State Bank of Pakistan (SBP), determined to bring down the inflation rate in the range of 20-22pc, has no option but to continue its tight monetary policy, which means interest rates will remain high. With the central bank’s key policy rate at 22pc, effective interest rates for most private sector borrowers remain close to 25pc. Can businesses grow amidst this high-interest rate environment? The answer is obvious: most of them cannot.

The government will have to rely heavily on bank borrowings for various needs, such as national security and salaries, leaving minimal funds for crucial development projects

To make the situation worse, excessive government bank borrowings continue to crowd out the private sector. During the first half of the current fiscal year (between July 1 and Dec 29, 2023), the government borrowed Rs4.14 trillion from commercial banks, of which it used Rs1.62tr for retiring previous central bank loans. So, net borrowings of the government for budgetary support stood at Rs2.52tr. Against this, net private sector borrowings from banks totalled just Rs373.5 billion.

Net budgetary borrowings in the same period of the last fiscal year were slightly lower than Rs389bn, according to the latest data released by the SBP. What caused this skyrocketing of the government’s budgetary borrowing? Well, the cost of domestic debt servicing in the first place — the amount of money the government pays back to banks as interest on previous loans.

As of November 2003, the total stock of the government’s domestic debt was Rs40.96tr. Just a year ago, at the end of November 2022, this amount was Rs32.99tr. A whopping amount of Rs7.97tr was added to domestic debt stock within just a year as foreign debt mobilisation grew increasingly difficult. It was bound to push the cost of domestic debt servicing, and it did just that.

This trend is sure to continue in the coming years. The stock of domestic debt is so huge that after the 8th February elections, the newly elected government will have to use the bulk of tax and non-tax revenue primarily to service this debt and a smaller part to service external debt.

It will have to borrow excessively from banks to meet all other requirements, including spending on national security and paying and pensioning government employees. Very little money will be available for development spending.

That will make it compulsory for the future government to look towards global financial institutions like the World Bank and the Asian Development for financing crucial national development plans. And we all know that the newly elected government will also have to continue to borrow from the International Monetary Fund to keep Pakistan’s balance of payment in shape.

One can imagine what that would mean amidst dramatic shifts in geopolitics and a widening gulf of strategic interest between the West and the East. The situation will surely become more testing if the Israeli genocide of people in Gaza continues unchecked and the ongoing Israel-Hamas war turns into a wider military conflict in the region or the pro-Palestine Houthis attack on shipping lanes and vessels in the Red Sea and counter-attacks by the US and the UK do not come to an end.

One must remember this perspective to understand why Pakistan is anxiously trying to secure huge foreign investments from friendly countries through the civil-military-run Special Investment Facilitation Council (SIFC). The basic idea is to lessen the burden of external debts and save the cost of external debt servicing while also leveraging foreign investment for industrial and agricultural growth to boost economic growth.

That may help contain growth in domestic debts and domestic debt servicing and free up resources for future domestic investment into development projects. It’s a long, arduous journey, and it would be naïve to expect that the country would get the desired results this year or even in the next year. The desired results may take several years to come.

In addition to containing the government’s domestic debt, getting rid of loss-making state-owned enterprises (SOE) is equally important. That is why SIFC is expediting the privatisation process. The stage is now set for the privatisation of Pakistan International Airlines. Let’s hope it is done in the best professional manner and in the shortest possible time.

Pakistan’s SOEs inflicted a huge loss of Rs1.395tr to the national exchequer in just two years (FY21 and FY22), according to a recent report of the Ministry of Finance. Out of the 81 SOEs evaluated, the number of profitable SOEs dropped from 56 to 50 during this period.

How inefficient our SOEs have become over the years is also evident from the fact that, just like the government, they, too, continue to accumulate debts year after year to remain functional. At the end of September 2023, their total debt and liabilities totalled around Rs2.33tr, with a yearly increase of more than 24pc.

Whether an elected government will pursue the privatisation of loss-making SOEs as vigorously as caretakers cannot be predicted at this stage, but given the enormity of financial losses these SOEs make and given that they accumulate debts often without leveraging it for growth, fast-track privatisation seems to be the only solution for most of them.

Published in Dawn, The Business and Finance Weekly, January 15th, 2024