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• by Admin
• 18-Nov-2022 || 04:17 PM

Debt

Debt may be defined simply as the amount owing by the borrower to the lender. A debt is a quantity of money borrowed for a certain period of time and must be repaid together with interest. The amount as well as the approval of the loan are determined by the borrower's creditworthiness.

 

Pakistan Debt

Pakistan’s total debt and liabilities reached Rs62.5 trillion at the end of September 2022, a report released by the State Bank of Pakistan (SBP) on Thursday said.

The report further said that the debt and liabilities were Rs51.1 trillion, last year, which have now reached to whopping Rs62.5 trillion after an increase of 12 trillion.

With the mounting number of loans, coupled with a lack of resources to repay, the country’s destiny has been placed in the hands of international financial institutions and global powers.

Meanwhile, the US dollar continued its upward trend against the rupee for the fifth consecutive session amid the country’s growing political instability.

According to the Forex Association of Pakistan, the dollar surged by 9 paisa against the local currency in the intraday trade in the interbank. The greenback is trading at 222.50.

In the open market, the US dollar is being sold between Rs 227 to 229, said forex dealers.

 

The central bank's latest debt bulletin for fiscal year 2021-22, issued on Monday, revealed that the debt load grew in absolute terms as well as in terms of the size of the national economy, showing that Pakistan is rapidly sinking beneath an unsustainable debt burden.

According to the SBP, the country's total debt and obligations climbed to Rs59.7 trillion, a 25% rise over the previous fiscal year.

Reasons to Increase Debt in Pakistan

Here are some of the most prevalent sources of debt that people encounter in their daily lives.

 

Low income or underemployment

Some people with lower-paying occupations may struggle to meet their payments or save money since there isn't much money left over at the end of the month. Living paycheck to paycheck might put you in a bind if you have a huge bill or an unexpected expenditure.

 

High living expenses

Some parts of the country have greater living costs than others. Greater property costs, rental expectations, and lengthier commutes can all contribute to a higher cost of living. All of these variables have an impact on everyday spending, which may leave you short on funds to meet other financial commitments.

 

Credit card overuse

Store cards and interest-free credit offers may seem appealing, but if you can't keep up with payments or are already suffering with other debts, it's better to avoid taking on any more.

Talk to your credit card companies about a debt management plan, and seek advice from organizations such as Citizens' Advice on the best approach to consolidate credit card debt.

It's also a good idea to avoid using credit cards entirely. Although a credit card can provide payment security and a better credit rating in some situations, unless you're sure in your ability to pay your credit card bills on time, try to stick to cash or debit transactions for the majority of your expenditures.

 

Unexpected costs

Accidents happen, whether it's the boiler breaking down or a sickness that prevents you from working. When confronted with hefty one-time expenses, having access to money or a decent insurance coverage might function as a cushion. These incidents are sometimes inevitable and just the result of poor luck, therefore having access to a fund to handle such emergencies is beneficial.

 

Health and medical costs are decreasing.

Healthcare may be costly, from medication to continuous bills if an ailment prevents you from working. Many people are in debt because of declining health and medical bills.

Although living a healthy lifestyle is preferable, some illnesses are the consequence of unlucky occurrences or an accident. If you are facing spiraling medical expenditures, you should contact a debt relief charity or the relevant benefits department to see if you may obtain assistance with your medical expenses and health care.

 

Impact on Economy

 

Excessive debt can harm economic performance when it is followed by inefficient transfers. More importantly, these transfers might trigger financial distress behavior, which can significantly hinder later growth.

The four principal repercussions are as follows:

1.   National savings and income are lower.

Less money will be spent in private initiatives such as factories and computers, making the workforce less productive.

 

2.   Higher interest payments, resulting in significant tax increases and expenditure cuts 

As interest rates rise from historically low levels and the government debt expands, federal interest payments will rise fast. We will have less money to spend on programs as interest consumes more of the budget. More money will be necessary if the government wishes to retain the same level of benefits and services while not running big deficits.

 

3.   Reduced capacity to solve issues

Governments frequently borrow to deal with unforeseen catastrophes such as wars, financial crises, and natural disasters. When the government debt is minimal, this is quite simple. However, with a big and increasing federal debt, the government is limited in its alternatives. For example, during the financial crisis a few years ago, when the debt was just 40% of GDP, the government was able to revive the economy by raising spending and lowering taxes. As a result, the government debt has nearly doubled its percentage of GDP.

 

4.   Increased likelihood of a fiscal crisis

If the debt continues to rise, investors will lose faith in the government's capacity to repay borrowed cash. Investors would demand higher interest rates on the debt, and rates may rise dramatically and unexpectedly at some time, with larger economic effects.