More Mismanagement by Pak: Govt Borrows Trillions in 45 Days | Vantage with Palki Sharma

Summary

Pakistan's financial crisis deepens as it borrows 3.2 trillion rupees ($11.5 billion) domestically in just 45 days, reflecting a borrowing rate four times higher than India's. This rapid accumulation of debt, post-midyear financial reporting, is seen as an accounting tactic to conceal the true extent of the country's financial woes. The high-interest borrowing is attributed to both the government's desperation for funds and the volatility of the Pakistani rupee, which has halved in value since 2021. The situation is further exacerbated by a new budget proposing a 40% increase in tax revenue, with the IMF potentially pushing for even higher taxes on agricultural income, up to 45%. This economic mismanagement is set to impact Pakistani citizens significantly.

Takeaways

• 📉 Pakistan has recently borrowed 3.2 trillion rupees (approximately 11.5 billion USD) domestically in just 45 days, reflecting severe financial mismanagement.
• 🏦 This borrowing was not from international lenders but from local banks at exorbitant interest rates, indicating a high-risk financial situation.
• 📅 The significant borrowing occurred post-midyear, after the declaration of expenses for the last financial year, suggesting an accounting trick to hide the true extent of debt.
• 💼 The average daily borrowing was about a quarter of a billion USD, which is nearly the total amount borrowed in the entire previous financial year.
• 💵 Pakistan's treasury bill returns are at an average of 20%, compared to 5% in India, showing the desperation for funds and the high cost of borrowing.
• 💸 The Pakistani rupee has lost almost half its value in the past three years, contributing to the high interest rates on loans due to currency volatility.
• 📈 The government plans to increase tax revenue collection by over 40%, an unprecedented move that will impact ordinary citizens.
• 🌐 Pakistan is seeking a new loan from the IMF, which is conditional on further tax increases, potentially up to 45% on agricultural income.
• 🏛️ Islamabad's willingness to heavily tax its citizens for an IMF loan highlights the extent of economic mismanagement and the sacrifices citizens will have to make.
• 🌳 The situation underscores the broader implications of economic policies on the well-being of a nation's citizens and the importance of financial stability.

Q & A

How much did the Pakistani government borrow in 45 days according to the report?

The Pakistani government borrowed 3.2 trillion rupees, which is about 11.5 billion dollars at the current exchange rate.

What was the average daily borrowing by Pakistan during the period of May 15th to June 28th?

Pakistan borrowed approximately a quarter of a billion dollars per day on average during this period.

Why is the amount borrowed by Pakistan in such a short period considered alarming?

The amount is alarming because it is nearly the same as what was borrowed in the entire financial year ending 2023, but this recent borrowing spree took place in just 45 days.

When did Pakistan borrow the money, and how does this timing affect its financial records?

Pakistan borrowed the money after May, after they had already declared their expenses for the last financial year. This means the fresh loans will not be registered until the middle of 2025, which is seen as an accounting trick to mislead the public and creditors.

What is a treasury bill, and how does it relate to Pakistan's borrowing?

A treasury bill is a type of government bond where an investor lends money to the government for a short period, usually with a maturity of 3, 6, or 12 months. Pakistan has tapped the bond market, issuing treasury bills at high interest rates due to its financial desperation and currency volatility.

How does the average yield on Pakistani treasury bills compare to that of India?

Pakistan's average yield on treasury bills is about 20%, which is four times higher than India's average yield of about 5%.

Why does Pakistan offer such a high premium on its bonds?

Pakistan offers a high premium on its bonds partly because the government is desperate for money and its currency is very volatile, which makes investors less willing to lend and thus necessitates higher interest rates to attract them.

What was the impact of Pakistan's financial situation on its recent budget?

Pakistan's financial situation led to a brutal budget where they plan to increase tax revenue collection by over 40%, with tax hikes primarily affecting ordinary citizens.

What is Pakistan's current stance on a new loan from the IMF, and what are the conditions?

Pakistan is seeking a new loan from the IMF and has accepted the condition to raise taxes further, potentially up to 45% on agricultural income, in exchange for a 6 billion dollar IMF loan.

What does the report suggest about the economic mismanagement in Pakistan?

The report suggests that Pakistan's economic mismanagement is evident from its high borrowing rates, the use of accounting tricks to hide the extent of its debt, and the willingness to impose heavy taxes on its citizens to secure an IMF loan.