NEED FOR A MORATORIUM ON FOREIGN DEBTS
TARIQ AHMED SAEEDI
Sep 6 - 12, 2010
During an international summit at the United Nations it was resolved that foreign lenders: International Monetary Fund, World Bank, Asian Development Bank, and Paris Club would be asked to write off loans of Pakistan or give the country at least moratorium on debt servicing in the wake of floods that devastated approximately 1/5th of its geography.
As the resolution has no biding on international financial institutions, it is worth appreciation alone by the government of Pakistan, which says recovery from floods and coming back to the routine life will cost 48 billion dollar to the country. A huge estimate indeed when divulged by the country's Prime Minister Syed Yousuf Raza Gilani caught many around the world and locals by surprise.
Apart from guesstimate or estimate, no one can deny that swirling floods have unfurled massive destructions to human lives, infrastructure, cultivable lands, machineries, and settlements across the four provinces nationwide. A 20 million population was directly affected while thousands of people were displaced. Zeal to build mega city and work force besides sizeable funds will certainly be required for resettlements, rehabilitation, and reconstruction.
Under precarious state of affairs, can Pakistan's economy, which has been crippled with macroeconomic imbalances, afford to service mammoth debts of mounting 54 billion dollar? According to a rough estimate, Pakistan has to cough up three billion dollar every year to service debts. Notably, an equal amount was recently offered by World Bank and Asian Development Bank to Pakistan as debts to prevent gulf in fiscal deficit, which might be widened to meet reconstruction and rehabilitation costs of floods. Government resorts to public debts to meet shortfall in revenue and expenditures, which is inflationary, and if it turns to external sources, economic wealth wanes.
The World Bank has already warned that Pakistan's debt to GDP ratio is perniciously approaching towards dangerous level. As per the bank's calculation, if a country debt to GDP ratio equates or surpasses 80 per cent, this is an omen of default. Pakistan's economy is worth 170 or 175 billion dollar. Gainsaying is the fact how many dots are left to touch the ultimate mark.
Be it internal or external, debt servicing and defence swallow up major parts of annual budget leaving in tatters rest for the crumbling economy in dire need of extensive development budgets. Share of defence in budget allocation is more than that of health and education. Allocation is not rationalised even where it is appropriate. Auditing of defence expenditures is never made public. Similarly, non-development expenditures are also a big drag on national income.
Besieged with the flood crisis, while the government seems to knock at the door of international financial institution for loan, yet it is all set to pare development expenditures for the current financial year. This cut will mean narrowing focus on pro-poor sectors and flagging scope of employment generations. Non-development expenditures that eat into national income significantly seem to be untouchable however.
People have exhausted of government's mantra of austerity it used to sing repetitively and expect some practical steps in this regard. Foreign visits with an army of staff officers of President and ministers militate against the appeal that Pakistan needs financial cushion from international community or lenders to get out of the crisis. Pakistan's leaders have to prove that they belong to debt-laden poor country and for this they have to show themselves up so. Regal entourage, aristocratic attire and obsession with the protocol will shoo the aiders, miles away. People also expect representatives of democratic government to mingle with people thrown in the middle of restlessness of open space from cosy spaces of their houses by impartial floodwaters, instead of sympathising with victims from the square of their palatial rest houses.
Pakistan's external debts and liabilities are rising with each passing year and ironically, the loans taken so far have not the economy stood firmly but augmented the burdens on it. The government's move to IMF after few many years of graduation from programme of Washington-based lender in Shaukat/Musharaf regime was the need of time since no other options were available to prevent default of the country on its international obligations, in other words payment in lieu of another liability. Macroeconomic stability restored, however, long-term solution to economic maladies of Pakistan does not lie in lender's programmes. It is in a homegrown remedy based on generation of employment opportunities, resource sharing, and equitable wealth distribution.
A vicious circle of external debts has accelerated at a speed that crushes jab in its velocity. This circle is intervened only if Pakistan gets respite from spending hell lot of money on debt servicing every year.
World Bank said to redirect funds from ongoing development projects in Pakistan to flood relief and rehabilitation activities while IMF committed over 450 million dollars aids for flood victims. Both foreign lenders could have done best for the country had they exempted the country of debts-repayments or for that matter moratorium may have given much-needed breathing space to flood cum terrorism-ravaged economy of Pakistan. This act of kindness would not have been new to IMF as it wrote off 268 million dollar loan of Haiti struck by earthquake last year. Undoubtedly, there is no comparison between Pakistan's 11 billion dollar and Haiti's 268 million dollar, but even a partial reprieve might augur far better for Pakistan's economy than an aid of equal weight.
Following the UN summit, few other local and international conferences reverberated with the urge to international lenders to waive off Pakistan's loans or give the country temporary breaks on debt servicing. A complete riddance deems impossible given the size of total loans and its scattered sources, yet a buffer zone can be provided.