Debt and Democracy

Until October 1958, Pakistan was debt-free. Today, its external debt has crossed $140 billion. Initially, there was aid, followed by borrowing. Expenses continued to rise, driven by the belief that the money was free and did not have to be repaid. While there were several loan write-offs internally, external debt continued to pile up. An illusion of growth was created, while there was limited value addition to generate the resources needed for repayment.

The government of Muhammad Khan Junejo focused on controlling expenditure. Widespread austerity measures were adopted. A ceiling of 1,000cc was imposed on staff cars. Luxury vehicles were withdrawn and auctioned. Effective programmes were launched for human development. To combat the menace of illiteracy, the Nai Roshni Schools programme was introduced. Borrowing was curtailed, and debt remained within manageable limits of under $20 billion.

Today, Pakistan’s debt-to-GDP ratio stands at 71.4%. Interest payments consume more than 50% of the national budget, leaving very little money for development.

The United States of America (USA), despite being the world’s oldest constitutional democracy, is also mired in debt. Its current debt has crossed $40 trillion under President Donald Trump. There has been an increase of 18.9% in the debt-to-GDP ratio. Republicans tend to favour borrowing, while Democrats generally try to avoid it.

Under President Bill Clinton, the debt-to-GDP ratio declined by 16.7%. He not only eliminated the budget deficit but also left a record surplus. While Democrats tend to focus more on people, Republicans believe in the trickle-down approach. Businesses are given tax cuts to encourage investment, while ordinary people are burdened with taxes.

While the common man continues to suffer, the rich are becoming richer. The gap between the haves and have-nots has widened, while the middle class is shrinking rapidly. Elections have become extremely expensive and are increasingly beyond the reach of ordinary people. Those who provide the funds often influence policy. The will of the people no longer prevails as it once did.

Only genuine democracy can contain debt because it focuses on the common good rather than individual interests. For a nation, excessive debt can eventually lead to destruction. The mighty USSR collapsed under its own weight. Borrowed money has to be repaid. It should, therefore, be used wisely and invested only in productive ventures. Otherwise, it continues to accumulate and eventually becomes unmanageable.

Pakistan has already borrowed $16 billion under the China-Pakistan Economic Corridor (CPEC). Instead of generating adequate returns on investment (ROI), some projects have created additional financial burdens. Independent power producers (IPPs) and the Orange Line Train in Lahore have contributed to circular debt. Even the Lahore Metro Bus service is facing financial difficulties, with payments falling behind.

Our next-door neighbour, India, has a debt-to-GDP ratio of 55.6%. Despite having a much larger economy, its expenses are relatively better controlled. Its exports are high at $863.1 billion, while its foreign exchange reserves stand at $729.33 billion. Indian democracy has produced dividends for the nation. National interests are generally kept supreme. The middle class continues to expand despite the huge gap between the rich and the poor.

By contrast, Pakistan remains dependent on foreign exchange remittances from expatriates. Budget deficits remain high, while expenses are not adequately curtailed. Imports remain uncontrolled. Despite 24 programmes with the International Monetary Fund (IMF), the economy continues to suffer from widespread unemployment. Qualified young people continue to seek opportunities abroad.

We must revisit our growing debt burden before it is too late. The party must come to an end. The future belongs to the young. The ablest must lead, and democracy remains the best option for achieving this goal.

It is time to put our house in order. This disorderly conduct will lead to disaster and must be avoided. There should be no more borrowing to support a frivolous and unsustainable lifestyle.