1. A re we on a road to a Debt Trap? Kaiser Bengali National Debt Conference 2015 PRIME Islamabad December 12, 2015

2. A snap shot of Greece Over 1995-2014 (20 years), average Revenue-GDP ratio was 41% average Expenditure-GDP ratio was 49% Average GDP growth: 1995-2007 = + 3.8% 2008-2014 = - 4.1% Debt-GDP ratio: 1995: 93.1% & 2014: 177.1% Recommended: “Reduce salaries and bureaucracy” and “Redirect government spending from non-growth to growth-stimulating sectors.”

3. Pakistan: A Fiscal View 2007-2014 Averages% Current Expenditure/Total Revenue Current Expenditure/Total Tax Revenue Development Expenditure ??? Excess financed by Debt Total Debt/GDP (2013-15) 117.2 163.5 69.5

4. How are we Financing our Expenditure? 1. Taxation Tax-GDP ratio Overall Agriculture Manufacturing Services 9.0 0.5 29.0 6.0 2. Debt Growth: FY 2013 - Q2 FY 2016 Total External 26.9 10.2 3. Privatization proceeds

5. Pakistan: External Sector View Average Trade Deficit (mill $) Imports/ Exports Average Trade Deficit/ GDP (%) Services Deficit Average Growth (%) 2000-038551.0971.9-7.6 2004-087,6221.4387.439.5 2009-1413,6901.5968.425.6 Exports are declining! From US$ 9.909 in Jul-Nov ‘14 to US$ 8.541 in Jul-Nov ’15

6. Rising Trade & Services Deficits are raising need for External Debt Why is Trade Deficit rising? - Increasing import intensity (imported coal & LNG ) - Declining exports Why is Services Deficit rising? - Rising foreign ownership – & profit remittance - via FDI - via Privatization

7. FDI & Privatization: Benefit or Burden? FDI in China is largely in export manufacturing If 90 cents of every one dollar export is remitted out as profit, China still receives net gain of 10 cents FDI in Pakistan is largely in services (frivolous sectors too) Companies earn their revenues in Rupees and remit their profits in Dollars … there is a net outflow of dollars Privatization of service sector firms – same impact

8. What is happening? Rising Trade & Services Deficits are raising need for External Debt Increasing Resort to IMF, Bonds, Credit Markets! Unlike in the past, why is IMF playing along? Are we heading for a Debt Trap?

9. SDR 4,393 Extended Fund Facility: Sept. 4, 2013 Quarterly Reviews: Targets missed … & Waived!! 1st, 3.1.14: “net reserves & social transfer payments” 2 nd, 28.3.14: “Discussions focused on … remedial actions to meet missed performance criteria.” 3rd, 28.7.14: “ceiling on Net Domestic Assets” 4 th & 5 th, 22.12.14: “… Fifth and sixth tranches … will be available upon the completion of this review.” 6 th, 7.4.15: “target on federal tax revenue” 7 th,, 2.7.15: “target on federal tax revenue” 8 th, 6.10.15: “fiscal deficit and government borrowing from the central bank” & “federal tax revenues”

10. Is Pakistan – a decade from now - headed on the Greek road?  For now, the answer is NO! Pakistan’s economic indicators are miles away from that of Greece – but similar!  For now, there is no need to press the Panic Button However, there is a need to raise the Alarm  There is a latent danger that Pakistan will be forced to make distress sales of vital assets (happening) – to foreign interests of course!  And to bend its security policies to suit foreign interests (happening?)

11.  The good news is that Pakistan’s financial managers have always known when to step back and take corrective measures  But how long can we live from crisis to crisis?  How long will development continue to be sacrificed at the alter of wasteful current expenditure?  How long will financial statistics be made to “look good”, but job growth ignored?  How long will we continue to live with the creeping erosion of the moral legitimacy of the State?

12. Thank You!