A ‘boiling frog’ situation

Pakistan’s Rs38.8 trillion domestic and Rs24.1 trillion external debt mountain is a “boiling frog” phenomenon for the economy as higher deficits and ballooning debt servicing costs are unsustainable. A boiling frog situation is one in which people fail to act on a potential problem that grows over time, causing it to become more severe until it eventually bubbles over. A frog thrown in boiling water might jump out, but if the water comes to boil slowly, it’s too late by the time it notices it’s been cooked. The age-old metaphor could easily apply to Pakistan’s debt situation. Net interest payments on debt already exceed the government’s total tax revenues, a recipe for a “disorderly” default and subsequently an economic meltdown. Governments have two ways to generate revenues – taxation and borrowing. Year-on-year Pakistan has continuously failed in its tax collection and has, unfortunately, excelled in its capacity to borrow to no-end, thus falling into a non-ending debt trap.