Fiscal imbalance is shortening boom, bust cycle

The alternating phases of economic growth and subsequent decline — commonly known as the boom-and-bust cycle — are getting more frequent by the year. Analysts expect that the signing of the latest $3 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF) for nine months will be followed by a longer-term Extended Fund Facility (EFF) for a bigger amount — an indication that the gap between a growth spurt and a subsequent blow-up has gone down from the usual three years to less than a year now. “It may go further down to six months,” said economic expert Ammar H. Khan while taking part in a policy roundtable titled “Sovereign default: averted or delayed?” organised on Thursday by Tabadlab, an advisory services firm and think tank based in Islamabad. Mr Khan said Pakistan is in a debt trap as it’s forced to borrow funds to retire the existing loans. “Interest expenses, which are the markup that we pay on both local and international debts, make up 77 per cent of the total taxes we collect every year,” he said. One consequence of paying more than three-fourths of the total tax collection in debt servicing is that the government is left with little fiscal room to spend on development and social services.