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.