'THE DEBT VOLCANO' in easy form
 

A very good article on Public debt
[url]http://epaper.dawn.com/~epaper/DetailImage.php?StoryImage=18_05_2012_007_004[/url]
first read the article and then read the bullet of the article , it will be easy for you to understand inshaAllah

Pakistan is facing many problems
• Less growth & Low investment & Inflation
And this all is due to accumulation of public debt (public debt means total debt of the country)
• Total debt obligations of Pakistan are 12.83 tr on Dec 2011 (65 % of the GDP)
• It was 6.5 tr on June 2008 (means it become almost double)
This is inability of government – how
• In not controlling high fiscal deficits and Short maturity domestic borrowing
• No new investments came in Pakistan
• No work for energy crisis (result in power sector losses and less investments)
It resulted in
• Government failed to pay demands of budget
• Fails to pay for social sector expenditures
Details of Public Debt (increase in public debt from 2008 to 2011)
• Exchange rate depreciation 1.5 tr
• Power sector losses 1.3 tr
• Debt servicing on incremental borrowing 1.3 tr
• Legacy expenditures 0.9 tr
How exchange rate policy help in increasing public debt
• Sharp depreciation of rupee (because of the policy of foreign exchange related to stable dollar )
• Subsidy to imports and penalty on exports
• We have less foreign reserves (means no reserve buffer left to mitigate the pressure)
How tax policies help in increasing public debt
• Tax-GDP ratio in 2005 was 13 % , which is 9.8% by 2011
• if taxes were collected then there was no need of debt and it would also have been reduced debt by saving not accumulated debt’s interest
Suggestions
• tax mobilization
• reform the power sector
• ceiling and check on government borrowings by strengthening provisions of the FISCAL Responsibility and Debt Limitation Act (FRDL) of 2005