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Cover Story


Rich nations can help ease the debt burden of third world countries

By Syed M. Aslam
Oct 18 - 24, 1999

Poverty has many faces of deprivation. A famished skeletal of a child, toiling under a sun instead of attending a school, a jobless man unable to feed his family, people who have no roof over their heads, acute shortage of potable water and lack of many other basic amenities portray the horrible face of poverty.

With the birth of a baby boy in Kosovo the world population touched the six billion mark on October 12. The world population has doubled since 1960 primarily due to growing life expectancy. Today the average is 65 years or 20 years more than it was in 1950.

Today more than 800 million people sleep hungry every night in developing countries alone— not because of sudden drought but as part of everyday's life. Forty million people, half of them children, die each year just because they were born in a wrong place— a third world country. Two billion people in the world fall victim to a number of diseases every year just because they do not have access to clean drinking water.

One third of the population of the developing countries, viz, about 1.3 billion people, live in extreme poverty to survive on less than a dollar a day or $ 300 a year— less than the amount some certain class of people can spend to buy a pair of jeans, a couple of CDs, a bottle of perfume and a suit in the industrialised West. On the other hand, dog and cat lovers in the US and Europe spend $ 18 billion to feed their pets every year. The amount spent to feed the armies of the world every year surpasses the total income of the poorest 45 per cent of the world’s people.

By 1995, the world’s poorest countries owed $ 215 billion to foreign banks and other donor countries. That’s twice as much as these countries could ever earn from exports. Each day, the rich West gets $ 35 million in debt repayments from the poorest nations in Africa which don’t have enough money to spend on education and health care of their people.

For instance, malaria is the leading health problem in south-Sahara Africa whose entire population of 550 million is at risk from this disease. The disease which attacks between 270-480 million people and kills some 1.5-1.7 million each year. This disease could not be controlled by the countries which have the resources to fight. Moreover, the UN’s World Health Organization also ran out of funds to roll back its malaria projects.

According to a report, prepared by the United Nations Development Programme, the assets of the 200 richest persons exceeded the combined income of 41 per cent of the world’s total population.

Poverty does not only exist in far-off places like Somalia, Haiti or Namibia— it is much closer to home. While Pakistan does not fall into the category of the world’s poorest nations, all the major indicators point to a widespread poverty— the inequitable distribution of income and taxation; the high infant mortality rate; the low literacy rate and the receding rate of participation at all stages of primary to higher education, and above all a low per capita income.

But the biggest indicator of all is the huge debt servicing which amounts to Rs 287.4 billion or 45 per cent of the total budget overlay of Rs 642.2 billion during the current 1999-2000 fiscal year. This has left a little precious for the development expenditure in the Budget 1999-2000 which amounts to Rs 116.3 billion of which the allocation to the health sector is Rs 2.7 billion and for education Rs 1.6 billion.

For a country whose official population is 134 million, while according to independent international sources Pakistan's population is 152 million, making it the sixth most populated country of the world, the budget allocations for education and health sectors is the lowest.

As of December 31, 1998 the total public and publicly guaranteed external debt soared to $ 28.6 billion. The external debt to GDP ratio has increased from 34 per cent in 1990-91 but rose sharply to 39 per cent in 1993-94. The debt servicing liability exhibits a rising trend in the 1990s— rising from $ 1,316 million in 1990-91 to $ 2,577 million 1998-99. This depicts an average annual increase of 8.8 per cent per annum.

The heavy per capita indebtedness is not only eating heavily to leave little money for development budget in such vital sectors as education and health but was caused by every successive governments which relied heavily on external as well as internal sources because it refused to live within its means.

Paying the debt is not only a moral obligation but also a legal one. However, who would like to pay a loan which he neither asked for, nor benefited from. This seems to be the case with the piling up of loans in Pakistan where elected as well as unelected governments took out huge foreign loans which though meant for the development only find their ways into the coffers of the corrupt politicians and the bureaucrats. The people hardly benefited from the loans for which they have been taxed mercilessly. The end result was the mass suffering brought on by a deluge of taxation and massive down-sizing in all the private sector companies which kept on churning out losses year after year.

While the salaried class whose income tax is deducted at source kept on bearing the brunt of increased taxation, not only direct but also indirect. However, the agriculture income keeps on remaining outside the pale of ‘real’ taxation while industrialists keep on cheating on their taxes with the blessings of highly corrupt tax collecting machinery for a cut. The later which passes on all taxes to the end consumers even refused to get enrolled in the tax net when the now deposed government of Nawaz Sharif tried to levy the general sales tax (GST) last year.

While nourishing and cultivating a strong middle class is seen necessary for strengthening any economy, the inequitable taxation on this class in Pakistan drastically curtailed its purchasing power. This created a new breed of ‘working poor’— a term much used and understood in the developed world— in the country. A majority of middle income segment of the society found it harder and harder to survive despite working hard for a living.

Unemployment and Income Distribution

Today official statistics put the total labour force in Pakistan at 38.6 million of which 36.2 million are employed. The official definition of labour force has kept on changing since the population census of 1951 which defined the labour force as "all persons of 12 years and above who were either self-supporting; partially self-supporting or were seeking work."

The definition was once again redefined in 1961 as "all persons of 10 years and above who were working for profit or wages or helping their family members." Not only the age was lowered by two years but the definition also included the unpaid family members as employed to distort the definition of employment.

Today, labour surveys define employment as "all persons of 10 years of age and above who worked at least one hour during the reference period (usually a year) and were either ‘paid employees’ or ‘self-employed’. Based on this definition, the total number of employed labour force comes to about 36.2 million in 1999 or an ideal 94 per cent of the total labour force of 38.6 million. However, the statistics due to its very inherent weakness of counting even those who were employed even for one hour during the year leave the room wide open to greatly underestimate the level of real employment, and for that matter unemployment, in a country where finding a work is becoming harder and harder by each passing day.

Moreover, there has been a glaring inequality in the ratios of income distribution as well as income shares of the highest 20 per cent and lowest 20 per cent income groups since 1963 till 1993. There have been four distinct phases of inequality.

During the first phase the inequality in income distribution narrowed the ratio of highest to lowest 20 per cent income groups declined from 7.1 per cent in 1963-64 to 4.9 per cent in 1970-71.

In the second phase, the income inequality ratio between the two groups widened from 5.4 per cent to 6.1 per cent during 1971 to 1979. In the third phase between 1984-1987, the ratio once again declined from 6.2 per cent to 5.5 per cent.

During the fourth phase, the last phase about which information is available, the inequality in income between the two under-discussed income groups rose sharply as never before by 2.3 per cent— from 5.5 per cent to 7.8 per cent.

Similarly, the income shares between the lowest 20 per cent income group and the highest 20 per cent income group also widened at the inconvenience of the former. In 1979, the lowest 20 per cent income group enjoyed 8.3 per cent share of the total income as compared to 41.3 per cent for the highest 20 per cent income group. By 1992-93 the share of the lowest 20 per cent income group by 2.2 per cent from 8.3 per cent to 6.1 per cent. On the other hand, the highest 20 per cent income group share’s increased by 7.6 per cent to 48.9 per cent.

Similarly the share of the middle 60 per cent income group during the same period declined from 47.7 per cent to 45.6 per cent. The glaring disparity in the ratio of income distribution and income share show that the middle and lowest income group were worst hit by the economic disparity.

According to available figures 34 per cent of the population in Pakistan lived below poverty line in 1992 and the situation has not improved for them any better today. Today the per capita income is $ 483 or just $ 1.32 per day. It will be much less if one uses the independent international statistics which put the population of Pakistan at 152 million at present instead of 133 million projected by the official media.

According to an estimate one-third of the population of Pakistan has no access to running water and sewerage. And as mentioned above at least one-third of the populace in Pakistan live in absolute poverty.

Education and Health

The big portion of the national budget, going towards debt servicing, leaves little money for development expenditure— Rs 116.3 billion out of the total budget outlay of Rs 642.2 billion in the current fiscal.

The main sufferers of this huge debt servicing which eats up the increased portion of the budget every year is the main reason for the negligible allocations for such vital sectors as education and health. Some third world countries spend much more on these two vital sectors which remain neglected in Pakistan.

Pakistan spent a meager 0.7 per cent on education and 2.2 per cent of GNP on health and education sectors respectively in the last fiscal year 1998-99. Despite a drastic increase in the cost of living the country is spending far less on education and health since 1987-88 when it used to spend one per cent and 2.4 per cent of the GNP on the two sectors respectively.

In a country where less than 1.4 per cent of the children enrolled in primary schools manage to reach colleges and universities due to high dropout rate at every stage of the education process, primarily due to poverty, the neglect to education sector poses a threat to the development of the country.

The inadequate health facilities and the neglect shown to it is obvious from the fact that Pakistan has the highest infant and under-five mortality rate as compared to other ten countries of the region. The doctor-patient ratio is too high— there is one doctor for 1,590 persons and one dentist for 38,185 persons.

Eradication of Poverty

At the 1995 World Summit for Social Development (WSSD), 117 heads of state and representatives of 186 countries and hundreds of civil organizations adopted the goal of eradicating poverty as "an ethical, social, political and economic imperatives of human kind.

The WSSD Programme of Action calls on UNDP to "undertake efforts to support the implementation of social development programmes, taking into account the specific needs of country in transition and others.’ It also mandates UNDP to ‘organize the United Nations system’s efforts toward capacity building at the local, national and regional levels and to support coordinated implementation of social development programmes through its network of country offices.’

In June 1995, the Executive Board of UNDP decided to make poverty eradication the over-riding priority of the organization and mandated it to embark on a wide-ranging progarmme. Based on the outcome of WSSD and other major UN conferences, UNDP has since taken steps to commit its energy-Human, technical and financial resources— to this priority.

The UN observed October 17, 1997 as the International Day of the Eradication of Poverty. In 1995, the UN General Assembly proclaimed the First United Nations Decade for the Eradication of Poverty from 1997-2006.

At the G8 Summit in Cologne in June this year the eight industrialised countries acknowledged the plight of the 42 Highly Indebted Poor Countries (HIPCs) which have a combined population of 700 million people. They offered an increased debt relief to these countries and stressed the need for the alleviation of human suffering.

Early this month the US President Bill Clinton pledged to forgo all $ 6 billion debt owed to the US thereby leading by example for the rest of the industrialized world to follow the example. However, the other countries in the Third World which are spending the major portion on debt servicing should also be given a similar shot to better the lives of their people. Pakistan should be one such country.

While it is only morally right to pay one’s debt the relevant question is if these loans were taken on the behalf of the people and whether they were spent on their welfare. Like many developing countries corruption has become a way of life in Pakistan and the general perception in the country is that only a small portion of these loans filtered down to the project it was meant for while the big portion of the loan found its way into the accounts of the policy makers at all levels of the administration.

The relevant question is— should the people be made to pay for loans which they never asked for nor benefited from. Holding the whole populace responsible for the mismanagement of billions of dollars of loans which consume the major portion of the budget is unethical to say the least.

While Pakistan dose not fall in the list of the HIPCs the fact is the massive debt servicing is causing severe hardships to the people who have left out of any progress and development.

The heavy burden of debt that every man, woman and child carries on his or her shoulder in Pakistan today should be reduced or altogether abolished to establish a better relationship between the donor countries and agencies and the common man of Pakistan.

According to the statistics, collected by the UN, the number of the world’s poor has risen considerably. Almost one quarter of the world’s population today lives in a state of poverty.

The number of people with incomes of less than $ 1 a day increased by almost 100 million between 1987 and 1993. About 1.3 billion people, one third of the developing world’s population, live in absolute poverty or with in resources less than $ 1 a day.

In industrialized country, many of which suffer from high unemployment and eroding social protection, over 100 million people live below the poverty line and 37 million are jobless.

Some 160 million children are moderately or severely malnourished and about 110 million do not attend school.

Pensions and social security protect many people from poverty but poverty in old age remains the most common experience around the world, particularly in developing countries which provide much less social security.

Unemployment has also been mentioned as a central cause of poverty and of growing inequality not only in developing countries but also in the industrialized nations. Unemployment averages 11.3 per cent in Europe while that in the transitional and developing economies the figures are much bigger. The ILO had estimated that the workforce looking for employment is growing by 47 million people every year worldwide.

One of the major reasons for the growth in the employment in the last few years is the corporate downsizing, mostly in the large companies. The trend has acquired a fashion trend which has led to more retrenchment than desirable. The experts argue that increasing the turnover and profits required not downsizing rather strengthening the innovative capacity and dynamism of an enterprise.

The debt burden of 20 of the world’s poorest countries could be ended with the cost of jut one military aircraft.

For nearly two decades, the debt crisis has had a crippling impact on some of the world’s poorest countries to severely restrict economic growth and daring scarce resources from health, education and other vital social services. Sub-Saharan Africa, spends more on servicing its $ 200 billion debt than on the health and education of its 306 million children.

Unpayable debt exacerbates poverty, so some or all of the debt must be cancelled, atleast for the poorest countries. Continuing to insist on repayment at the expense of lives of children is economically immoral and morally indefensible.

The US President Bill Clinton pledged early this month to forgo all $ 6 billion debt owed to his country by 41 heavily indebted poorest countries which have a combined population of 700 million people. The move is highly appreciable and has to be matched by the rest of the industrialized world.

The pledge followed the Cologne Summit of G8 in June which acknowledged the plight of these countries. The extremely poor in the other parts of the world deserve the same treatment for the relaxing or altogether abolishment of the loans to be given a chance for human betterment.