At present Pakistan's economy is one of the most debt infested one in
From Shamim Ahmed
May 01 - 07, 2000
According to the World Bank's report on the World Development
indicators 2000, Pakistan's external debt increased more than four times in last 18 years
from $ 9.9 billion in 1980 to $ 32.23 billion in 1998. The country's long-term debt shot
up from $ 8.5 billion in 1980 to $ 28.66 billion in 1998. The World Bank and IDA loans and
credits in 1980 stood at $ 2.25 billion compared with $ 6.93 billion in 1998. Pakistan's
use of the IMF credit in 1980 was $ 674 million, which had risen to 1.36 billion 18 years
later. On population, the World Bank report says that Pakistan's population is projected
to rise from $ 131.6 billion in 1998 to 196.4 million in 2015 at a rate of 2.3 per cent
compared with 2.8 per cent in the 1980-1998 period. According to the latest figures
compeiled and released the State Bank of Pakistan the burden of foreign debts has risen to
over $ 38 billion by Dec 31, 1999.
Interestingly, the four-fold increase in foreign debts has been
registered despite successive governments tall claims of pursuing policies to turn the
country self-reliant, over the period under review. The major portion of this increase in
foreign debt had, however, come during the past decade when Nawaz Sharif and Benazir
Bhutto played musical chair in and out of the Government although both had heavily relied
on the slogan of self-reliance to win the elections. Ironically, Chief Executive General
Pervez Musharraf was also qutre vehement on the issue of self-reliance at the time of his
take-over but his Finance Minister Shaukat Aziz has been going abroad to seek financial
help from the International Monetary Fund and World Bank. By now it has perhaps become our
compulsion. As rightly explained by the Finance Minister Mr. Shaukat Aziz there is no
immediate solution of this problem. It would take years of prudent handling of the
economy, austerity and economy drive in all sectors that Pakistan can get out of the debt
At present Pakistan's economy is one of the most debt infested one in
the world. We are drowned in foreign debt to the tune of 3$ 8 billion and its debt
servicing has risen to over Rs. 275 billion which works out to be almost 65 per cent of
the total revenue budget. Its total public debt (both internal and external is about 95
per cent of GDP or 600 per cent of annual revenues. Its external debt at 38 billion
dollars exceeds 350 per cent of its annual foreign exchange earnings.
A much needed work has, however, been done by the government of Gen.
Pervez Musharraf which set up managemennt Committee mainly to devise measures for breaking
the debt trap in which the country was deeply entangled. The 11 member committee headed by
Dr. Pervez Hassan, former Chief Economist of the World Bank, has been asked to assess
Pakistan's debts, review the existing framework for debt contracting, recommend medium and
long term goals for the reduction of burden of public as well as external debt, and to
specify the institutional arrangements of a debt management system.
The committee, will prepare an interim report by the end of May 2000
focusing on policy issues such as goals of debt reduction, consistency with macroeconomic
framework and need for additional external debt relief. The final report, to be submitted
to the Cabinet for consideration will articulate the policy issues and will provide
guidance for the future institutional framework.
The huge debt trap in which Pakistan finds itself entangled today has
in fact, turned out to be a death trap stripping the country of its sovereign right to
take important decisions independently for its political and economic survival and
progress. None else but our own short-sighted leaders of the past are to be blamed for
this traumatic national misfortune. However, the present government seems determined to
tackle this vital problem too, along with others already placed on its agenda.
The debt management committee will further aim at ascertaining their
impact on economic growth and macro economic management with special reference to: Factors
underlying the growth in debt burden as measured by indicators such as ratios of debt to
government revenues, interest payments to government revenue, foreign debt service to
foreign exchange earnings: impact of high public debt interest payments on government
development and social spending, implications of large contingent liabilities of the
government for further debt and fiscal management and consequences in near term of large
gross external borrowing requirements for balance of payments managements.
It will also review the existing framework for debt contracting and
evaluate the present capacity for the debt management, identifying weakness and
shortcomings, with special reference to present guidelines, if any, on internal and
external debt, system of debt accounting and statistics, respective institutional
responsibilities of the Finance, Economic Affairs and Planning Divisions of the government
and the State Bank of Pakistan and existing procedures for tracking contingent liabilities
of the federal Government.
Moreover the committee will recommend medium and long term goals for
the reduction of burden of public as well as external debt in order to bring them down to
sustainable levels, and outline a debt management strategy to achieve these goals without
sacrificing economic growth unduly.
While making the recommendations, the committee will give special
attention to the need of consistency between macro economic framework and borrowing plans,
the role expanded exports and government revenues can play in decreasing debt burden, the
contribution that privatisation revenues can make to reduce outstanding debt, and the
additional external debt relief that will be needed during 200l-2002 to deal with the
large over hang of external debt payments, maintain an adequate level of imports and to
quarterly build up foreign exchange reserves.
The body will also specify the institutional arrangements of a debt
management system which will help implement the government strategy, monitor the goals on
debt reduction and contribute to an efficient use of externally borrowed resources. This
will outline the allocation of responsibilities for debt management between Ministry of
Finance, Planning and Economic Affairs and the State Bank of Pakistan and the
organizational structure of the debt management bureau and its needs.
The PPP and PML governments' criminal negligence of drifting the
country into the international monetary institutions' trap is the crux of the nation's
financial crisis. BB and Nawaz Sharif are also guilty of failing to turn the situation,
rather further burdening the country with additional external debts. To rebuild the
national economy from the shambles, inherited by the previous government is certainly an
uphill task. Although there has been no turn around. So far Gen. Musharraf has identified
the real issues and has started moving, slowly of course, in the right direction.