Gross Domestic Product (GDP) of 4.7 percent for 2015-16 was inflated, sources in the Finance Ministry told Business Recorder on condition of strict anonymity.
The objective of inflating the growth rate was to understate the debt to GDP ratio, a key indicator that reflects the state of macro-economic stability, sources added.
With a 3.1 percent increase in growth, as calculated by Dr Hafiz Pasha, the government would be unable to decrease the debt to GDP ratio to the budgeted 61.1 percent in 2016-17, sources said adding that there is no likelihood of any decrease in debt to GDP ratio given the poor revenue base.
Sources further stated that higher than 60 percent debt to GDP ratio is highly unsustainable for Pakistan because of our low revenue mobilisation.
A country like Japan, sources said, with 120 percent debt to GDP ratio can be sustainable because every body pays taxes.
However, in Pakistan the situation is entirely different and tax collection is appallingly low as neither the ruling class pay taxes, nor their voters and supporters be they traders, industrialists or big farmers.
The government’s extensive and expensive borrowing would create serious problems for the next government.
“We are in a debt trap already as we borrow to repay the previous loans,” said Ashfaque Hassan Khan, a former advisor to finance ministry.
Sources further stated that a hiked up growth rate would give a lower fiscal deficit than is actually the case.
The government budgeted 4.3 percent fiscal deficit for 2015-16 and given that Pakistan is currently under an International Monetary Fund (IMF) programme this target was agreed after consultations with the Fund staff.
Any deviation from the target may have negative repercussions on the release of the last two tranches.
The IMF has expressed concern with the Pakistan’s debt and stated that at about 65 percent of GDP, public debt has remained high.
To put the debt-to-GDP ratio on a firm downward trajectory, the country needs to build fiscal buffers against adverse shocks, safeguard macroeconomic stability, and set the stage for sustainable and inclusive growth.
Sources further stated that although the government has recently been making statements that the country does not need another IMF programme, some fast approaching debt repayments may deplete the foreign exchange reserves swiftly as in the absence of inflows in the form of exports and foreign direct investment the government may be compelled to go another IMF programme.
There is unlikelihood of a decrease in allocation for debt servicing, said an official, adding that the way allocations under this head are rising every year, drastic steps are required to mobilise revenues. –Business Recorder