Pakistan Institute of Development Economics


Mortgaging Pakistan

Publication Year : 2021
Explore More : PIDE in Press

THE news that there is a proposal to mortgage Islamabad’s F-9 park to get a loan led to anger across the country. Although the news has not been confirmed officially, and the prime minister reportedly opposed such a proposal, nobody should be surprised if it proves to be true. It would not be the first instance of its kind. We’ve had many assets mortgaged for loans, a practice that began in 2006 under that crafty banker Mr Shaukat Aziz, and later taken up by yet another wily operator Mr Ishaq Dar.The wave began with highways, later extending to motorways, airports, PTV, Radio Pakistan and may now engulf parks in this list. In 2006, amidst hymns to ‘high growth’, Rs6 billion was raised by mortgaging toll-yielding roads like M-1, M-4, IMDC and Okara Bypass. In 2014, $1bn was raised by pledging the Hafizabad-Lahore section of the Motorway. An additional Rs49bn was raised through pledging the Faisalabad-Pindi Bhatia section of the Motorway (other sections too have been pledged over time). From 2013 to 2016, Karachi’s Jinnah International Airport was mortgaged for raising a sum of around Rs492bn. Reports suggest that PTV’s assets plus that of Radio Pakistan were also mortgaged during that time.And the ploy to assuage public anger by couching the proposed mortgaging as the Islamic mode of financing (Sukuk) is unlikely to succeed given that the underlying reason remains the same: it’s being done to raise more debt.The debt numbers since 2007 are bewildering. In the first 60 years (1947-2007), the nation’s total debt and liabilities stood near Rs7 trillion. Within a span of 10 years, by end-fiscal 2018, the number had skyrocketed to a confounding Rs30tr (of which approximately Rs25tr was public debt). At present, under the PTI, the number has galloped to Rs45tr (the public debt is around Rs 36tr). Sticking to public debt only, it means that after 2007, we’ve added more than Rs2tr every fiscal to public debt.On the one hand, we can’t seem to survive without debt. But on the other, we are paying back billions on debt we don’t know how and where to use.Before we proceed further, here’s a puzzle: every year, Pakistan pays back billions of rupees as ‘commitment charges’ on debt that is lying unutilised. For interested folks, solving this puzzle would require knowing who prepares and negotiates these debt contracts.What’s going on? On the one hand, we can’t seem to survive without debt. But on the other, we are paying back billions on debt that we don’t know how and where to use. What exactly are we taking debt for then? I raised these questions three years ago on these pages (‘The default option’), and they remain relevant even now. The article asserted that there was little to no use taking on added debt because it makes little (if any) difference to our quality of life and economic growth.And then there is the less noticeable aspect of the inequalities in terms of which assets are being mortgaged, and who ends up bearing the burden of debt. Notice that the F-9 park is not the most valuable property in Islamabad. In fact, places like Islamabad Club and the Gun Club (both doled out for peanuts) are more valuable. The same is true for Lahore’s GOR and various public places on its Mall. But these will never be mortgaged because they are the preserve of this country’s elites, places where the mighty and powerful of this country cool off and discuss everything from grasping subsidised plots to landing a fat government contract. The F-9 park, in contrast, is open to the general public, where everyone can enjoy some leisure without taking recourse to rent-seeking. Hence the law, and mortgage strategies, is only applicable to these places.If this much reasoning is clear, then it’s not difficult to grasp why places like the Karachi airport or motorways are being mortgaged: the financial burden of payment falls on all rather than exclusively on the elite.Ultimately, all this debt will have to be extracted from the people!Simply put, we are gorging ourselves to death by taking on debt that confers little (if any, in ‘net’ terms) advantage upon the nation as a whole. It’s not that nobody else is taking on debt. In fact, the world is awash with debt, especially governments. But the manner in which it is used, plus the way it is contracted, is quite different and does end up benefiting those countries. Take Scandinavian countries as an example. Widely held up as role models of development, they carry a heavy debt burden. But it’s used to further the quality of life rather than extend an inefficient leviathan in the form of the public sector. And that investment pays off in the form of the public’s trust, which then happily pays a large percentage of their income to the government as tax. The situation in Pakistan is completely the opposite.This government’s economic management seems to be built upon blaming every folly and failure on ‘previous governments’ (ironically, its own economic management is in the hands of a former PPP-era finance minister). But that can’t sidestep the boisterous and irrationally exuberant claims (before coming to power) of steering the economy out of the abyss courtesy of a super team of ‘specialists’. More than two years down the road, we now know that neither was there any team of specialists, nor did the claims hold any significance.What we do know is that in the first five months of the present fiscal (July-November 2020), a record Rs921bn was paid on servicing domestic debt alone.In conclusion, debt acquisition does not perpetuate worries if it can spur economic growth and enhance the quality of citizens’ lives. For that to happen, a country needs to have an excellent growth plan, required incentives that align with the plan and a proficient administrative set-up that can carry out growth-related work efficiently. Pakistan has none of these attributes.Hence, we are caught in a vicious debt spiral, which might prove to be a death spiral.