Ex-SBP governor warns of Pakistan’s escalating debt crisis

KARACHI: Dr Murtaza Syed, former Governor of the State Bank of Pakistan (SBP), issued a stark warning on Saturday about Pakistan’s escalating debt crisis, labelling it as “one of the deadliest debt traps in the world”.

In a series of tweets, Dr Syed, who served as the acting governor of the SBP in 2022, elaborated on the severity of Pakistan’s debt situation. He urged for a more strategic approach to managing the country’s debt, stating, “Pakistan is in one of the deadliest debt traps in the world.”

He criticised successive governments for accumulating excessive debt and squandering it on non-productive expenditures, primarily consumption.

“Our governments have accumulated too much debt and wasted it on unproductive spending like consumption. Remaining current on past debt is forcing us to default on our development and climate needs,” Dr Syed explained.

According to Dr Syed, Pakistan is currently paying more to service its debt than any other country globally and is expected to continue doing so for several years.

“This necessitates punitive and unrealistic taxes to pay for old debt and leaves no real resources to invest in Pakistan,” he noted. He further warned that this financial trajectory could lead to social unrest, similar to recent events in Kenya.

Citing data from the UN Trade and Development (UNCTAD) debt dashboard, Dr Syed highlighted that Pakistan’s government pays 6 per cent of its economy’s share on interest, the highest among developing nations.

Furthermore, at 65 per cent, Pakistan has the second-highest ratio of interest payments to government revenue in the world, trailing only Sri Lanka.

Dr Syed lamented that the heavy interest rate burden leaves the government with no funds for crucial social spending. “As a result of this heavy interest rate burden, the government has no resources left for social spending. This is terrible as social spending is critical for upgrading the skillset of our population and boosting the quality of jobs, exports, and foreign investment in the economy.”

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