Debt and taxes: PPP’s planned loss

Published: February 28, 2012

Due to economic realities, the PPP might not wish to win the next general elections.

Elections are around the corner and the political heat is building-up. Soon there will be rallies, corner meetings and slogan chanting. Despite issues of massive magnitude, PPP’s coalition government will, hopefully, complete its term. But they might not wish to win the next general elections.

The case I am trying to make is based on economic realities. Let’s analyse why.

In the past four years of government, Pakistan’s economy faced tough challenges; two floods, financial mismanagement and lack of governance in all aspects of government functions, pushing the country into a deep economic crisis.

Pakistan’s total public debt, which was Rs.6 trillion back in June 2008, reached Rs.10 trillion in September 2010 and soared to a whopping Rs12 trillion between July and September 2011. The Pakistan debt office cautioned in early 2011, saying that, “High public debt can adversely affect capital accumulation and growth via higher long-term interest rates, higher future distortionary taxation, inflation, and greater uncertainty about prospects and policies”. The government continued to borrow from commercial banks, leaving no liquidity for the private sector to grow.

The debt issue will become extremely challenging for the country from this year when the government will have to start returning US $11.3 billion to IMF against the incomplete facility that we took from the fund. This will increase the pressure on our external debt, which According to IMF, will increase by another $2 billion in 2011-12 and exceed $72 billion by 2015-16. The scheduled payments are $1.2 billion in 2012, $2.9 billion during 2013, $4.3 billion during 2014, and $2.6 billion during 2015.

The rupee is losing its value against all foreign currencies. In July 2008, 73 Pakistani rupees were equal to $1, with massive decline in the rupee value; it recently touched Rs91 against the greenback. This means that Pakistani imports are becoming expensive, and exports are not benefiting either due to the increase in cost of doing business, mainly due to power shortage, expensive fuel and energy price.

Corruption is yet another major nuisance. Enough is written in the press about posting non-qualified and incompetent individuals at public companies who indulge in non-transparent financial transactions. Needless to say those actions also triggered the financial crises for this government.

Given the challenges 2012 onwards, PPP might cleverly try to lose its position in the general elections, to give chance to another coalition to struggle with the deepening economic crisis in Pakistan. Some people will say I am insane – but in the light of the above stated facts, this theory is likely to prevail.

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Does the PPP have a good chance of winning the next general elections?

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Hammad Siddiqui

Hammad Siddiqui

An institutional capacity building specialist who currently works as Deputy Country Director at Center of International Private Enterprise (www.cipe.org). He is qualified from the US Chamber of Commerce and blogs at hammadsiddiquiblog.com

The views expressed by the writer and the reader comments do not necessarily reflect the views and policies of The Express Tribune.

  • http://struggle.com.pk/ Imran Kamyana

    To expect from an economic system like Capitalism which has become obsolete internationally, is a stupidity in itself. World needs Socialism and future of humanity belongs to a democratic planned economy. Either Socialism or Barbarism. Recommend

  • Salman

    As crazy as it sounds, a logical analysis and a great possibility considering the quality of the people that make up the PPP. Recommend

  • Saad Amanullah Khan

    A very factual analysis and quite a logical conclusion. A pretty sad state of affairs for our country and we badly need someone to steer this ship towards progress, growth and improved governance. There are a lot of qualified people but unfortunately not in postion of power. We, the silient majorty, must act and help our nation. Time is running out …Recommend

  • Samad Farooq

    I never realized these facts! Well researched and brief concept! Now the question is that if the situation is so bad, is the next government going to improve it, or it is going to get worst? Recommend

  • http://www.bsoforum.com Majid Shabbir

    The people of Pakistan had high hopes from the so called democratically elected PPP but poor planning and self-gain policy, has not only put every segment of the society in trouble water but also set a very difficult stage for any party that would take over. Crises and problems are so huge that for sure would take a long time for recovery. Any party that comes in power, have to show great sense, patriotism, honesty and wisdom to bring economy back on the track to some extent otherwise, situation, will be worse than before.

    In next term elections, PPP government possibly would not seriously attempt to win elections, because it knows that no party could succeed in bringing prosperity for the people overcoming multiples problems like energy crises, circular debt, external debt etc. I agree with the point of view of the writer, that PPP would not be interested in winning elections and I wish that any government that takes over, should do something better to save the country for going in further economic turmoil.Recommend

  • Parvez

    Excellent analysis. Deliberately running the economy into the ground and filling their pockets at the same time has worked well for them. Why should they not try to do it all over again ?? After all what have they to lose ?? Each one has a fool proof exit strategy and even if they manage to pull out one year, that’s one extra year of sunshine for them.Recommend

  • http://www.scribd.com/asifameer Asif

    @Imran Kamyana: You are mixing Capitalism with Banking. Capitalism has been around since the time of Rome. Banking came about in the 1600s. Keep an eye on the banks and you’ll see how the world goes round.Recommend

  • http://www.scribd.com/asifameer Asif

    Glad to see an Economic article. Hammad I have wondered this issue too. Who in the right mind wants to rule a country that is so broke, that doesnt have the financial, economic, intellectual and moral capital. Pakistan represents 2.53% of the World’s population, ranking 6th by country. Yet its economy produces mere 0.25% of the world economy. To put it bluntly, a Pakistani living in Pakistan consumes 10 times more than what he produces. I am not saying Pakistanis are consuming alot. They arent producing almost anything. Ofcourse this isnt true. When one looks deeper in the figures, one realizes the external debt buildup, the distortion of markets via subsidies, the inequality caused by Govt borrowing, bank lending and inflation. Same remain to be masters, while others become the slaves.Recommend

  • meekal ahmed

    This is an intriguing thought. But it carries little weight because it is divorced from real-politic. Recommend

  • Sania Zulfiqar

    Hammad sb. you portrayed a very true picture of our fragile economy. Our politicians are only making false promises with the nation and having no interest in the economic development of the country. The negative impact of continuous borrowing on the economic development was quite significant as the high debt servicing has eaten out the fiscal space and most of the sectors of the economy were negatively affected.
    Government borrowing from the commercial banks would ultimately lead to crowding out of the private sector that would reflect adversely on the overall growth in the country. Government should reduce dependence on foreign and domestic borrowing and increase the revenue base through its tax reform programs.
    Now, Pakistan really needs a leadership who can drive it according to the wishes of the people of Pakistan and bring prosperity in our great home land.Recommend

  • Amadeus

    umm so how about reigning in the military budget?Recommend

  • Muhammad Ramzan

    Good wake-up call to our policy makers. But unfortunately our rules don’t pay any attention to such timely warnings. They have already messed up the economy with both hands while the elections are round the corner and there are clear indications that the government will let loose the national kitty to buy votes. This will plunge the economy into deeper troubles making future economic outlook more gloomy and creating new challenges for coming rulers. The current economic team is just dancing to the tunes of their masters instead of putting the economy on right track.

    The nation should get ready to face more tough time in coming days. That’s for sure. Recommend

  • Muhammad Ramzan

    Good wake-up call for our policymakers. But unfortunately, our rulers don’t pay any attention to such timely warnings. They have already messed up the economy with both hands while elections are round the corners and there are clear indications that the government will let loose the national kitty to buy votes. This will plunge the economy into deeper troubles making future economic outlook more gloomy and creating new challenges for coming rulers.
    The nation should get ready to face more tough time. that’s for sure.Recommend

  • Jamal Ahmed Khan

    Alarming situation! Does it mean that we will be hit by massive inflation in the coming years? There must be some plan to keep the economy going, after all we have economists sitting in the planning commission and Ministry of Finance!Recommend

  • Sohail

    Nothing is learnt from the past. It’s very easy to diagnose future political scenario of Pakistan; same foot-marks and same political strategies. Well researched blog, Hammad! Recommend

  • WB

    All these jokers make me miss the days of martial law. Recommend

  • http://www.rcci.org.pk Irfan Manan Khan

    Well its very nice to see your point of view regarding economy in context with politics, i truly agree with your analysis in fact economic systems cannot sustained without an active role of politics in any country.
    I believe PPP is primarily lacking the basic objectives or they may not have either, the country cannot be managed on day to day basis. 5 years economic plan which was initiated in Ayub’s era was in one of the evident feature of economic progress in his rule. I think PPP or any other ruling party have to define their priorities in order to have something in hand at the end of the day.
    I think PPP will complete its tenure of 5 years and most probably they will have some footings in upcoming government next year, its something on our part that how we cast our vote. The system is in evolutionary phase and will take some time for filtration. Recommend

  • Baba Ji

    Well the theory seems too “intelligent” to be practiced by PPP goons … Jahil quom will again vote them for the great BB’s “democracy is the best revenge” and PPP shall do another term testing the resilient awam under the able leadership of Bilawal !!!! Recommend

  • http://www.usmanfarooq.com usman farooq

    I dont think this post is valid and you should rethink before posting any such content on a blog like pak tribune.Recommend

  • SA

    @usman farooq:
    I fail to understand why you say this post is invalid. Appreciate some perspective as I am totally baffled ?Recommend

  • http://- Abid P. Khan

    @Author

    “PPP might cleverly try to lose its position in the general elections, to give chance to another coalition to struggle with the deepening economic crisis in Pakistan.”

    This could very well be the planned scenario, bearing which in mind, a future coalition partner, has been propped up by the grand chess master/s.

    Added bonus of this game plan, would be that all the three contenders (2old+1new), would share the bounty (i.e. represent the “people“) however none will be strong enough to start getting ideas, as done in the past by both father and the daughter.

    Direct hook up from the parliament, will assure a daily dose of Nura Kushti. Recommend