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Per head foreign debt higher than per capita income

  1. Disparity in import duty of palm oil
  2. The declining foreign investment
  3. Rupee volatility
  4. Boom is not far away
  5. Increasing domestic and foreign debt

Debt burden rising drastically despite tall claims by the government

From Shamim Ahmed Rizvi,
July 05 - 11,1999

The present government has, perhaps, broken all previous records by increasing the burden of external and internal debts by about Rs. 350 billion during the first 2 years of its second tenure. The quantum of both external and internal debts, which was Rs 2.15 trillion when the government took office, has risen to Rs. 2.5 trillion by now. This is despite the fact that the government claims to have retired domestic debts of Rs 66 billion through relief received from restructuring of foreign loans.

These figures were revealed by nobody else but the Finance Minister Ishaq Dar in the National Assembly who claimed it to be a historic achievement by the present government.

According to figures with the ministry of finance, the total foreign and domestic debts in December, 1988 stood at Rs. 2.5 trillion. The figures of Rs. 2.5 trillion include foreign debt of $ 28.6 billion which if computed according to the current exchange rate comes to about Rs 1.57 trillion.

In the year 1996-97, when government assumed the power, the country owed a total of Rs. 2.15 trillion in domestic and foreign debts. In the subsequent year the total foreign and domestic debts rose to Rs. 2.39 trillion with Rs. 1.157 trillion of domestic banks and non-banks borrowings and foreign debts equivalent to Rs. 1.236 trillion.

These figures were read out by the Finance Minister at the floor of the House on Friday last in his winding up speech on budget. He went through these figures in such a haste that nobody in the press gallery could follow him. Later, he avoided newsmen question on the subject.

These figures speak volume to reflect how aptly the economy of the country is being managed. The Nawaz government's record on debt deserves severe criticism because it has committed itself publicly to reining in government expenditures, raising revenues and reducing the debt burden. The much-touted Debt Retirement and National Self Reliance Funds yielded paltry results, while all the government's announcements about reducing non-development expenditures, downsizing government departments, austerity programmes, and privatization, have proved ineffective. The government is apparently skirting around the main problem of reduced or stagnant revenues because of an economy in recession.

For the past many months the national press has been pointing out that overall debt scenario of the country is extremely precarious and the situation would worsen further with very grave risks if measures are not taken immediately. The political leadership ought to rise to the occasion and meet the challenge squarely otherwise Pakistan may soon find itself among the countries like Sudan and Somalia.

A simple calculation has also been made to show that every Pakistani is indebted to the extent of over Rs. 22,000 which is more than per capita income of the country. Without going into the exercise of determining the gainers/losers of such an imprudent policy, just making an educated guess by looking at the conditions prevailing in the country, one could safely conclude that ordinary citizens of the country and every new-born have been shortchanged by the successive rulers of the country without any of their fault.

The reasons for such a sorry state of affairs have been analyzed time and again. Simply saying, the fiscal and external sector policies have been imprudent almost all along allowing the government and the country to live beyond its means and pile up the amount of borrowings year after year. The burden of borrowings has now increased almost to a breaking point, debt servicing alone comprising about 50 per cent of the budget expenditure. On the other hand, the country was unable to create assets or productive capacity which could enhance growth prospects, taxable capacity and export potential to pay for the increased borrowings. The resort to external resources, in particular, could have been justified only if the increased export earnings would have been more than compensated for debt servicing. Most of such borrowings in Pakistan seem to have been used for payment of principal and interest on old loans. Projects were mostly undertaken less for economic merit and justification but more for political reasons.

Some of the other countries had also gone the same route but most of them changed the course once they realized the imminent risk of self destruction. In Pakistan, there is as yet no trace of such a realization. Realizing that the present leadership, although, not completely innocent, is not wholly responsible for this state of affairs but the initiative to change the pervious hazardous policies and put the country on the right track cannot be taken by none other than the government now managing the affairs of the country.

The situation regarding domestic debt is equally alarming. Soon after Independence, the country had a balanced budget. But later the whole of the capital budget came to be financed with the support of borrowings, both from domestic and external sources.

With the continuation of this pattern of behaviour and government priorities, the country cannot break the vicious circle. A nod from Washington, loaning of few million dollars from IMF and other sources can lengthen our life in the oxygen tent for few weeks but salvation lies in drastic change in attitudes of individuals and complete restructuring of government policies and their honest implementation. Are we prepared to do that? The stakes are high and the time is short.