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A policy package to get rid of dependence on foreign loans

Nov 27 - Dec 03, 2000

The Debt Reduction and Management Committee (DRMC) has finalized its recommendations and its summary report of the debt exist strategy will be discussed in the next meeting of the federal cabinet. The Ministry of Finance has concurred with the plan of action aiming at keeping the country away from IMF assistance and attached loans by financial year 2003-2004.

The DRMC in its two days deliberations on Nov.14-15 finalized its recommendations and prepared the summary report to be submitted to the Cabinet through Ministry of Finance. Chairman DRMC Dr. Purvez Hassan, formerly Vice President of the World Bank, presided over the meeting spread over four sessions of detailed and in-depth discussion on various aspects of the issues. The focal agenda of the debt exits strategy would be to further reduce non development expenditure and gear up the privatization of public entities to pay back the foreign debts. The other important aspects taken care of in the propose plan include improvement in the remittance through official channel, measure to enhance exports and to stop inflow of unwanted imports.

Source in the Finance Ministry revealed that after approval of the cabinet the report of DRMC will be presented to the experts and general public to invite their suggestions and comments. The strategy may be amended/improved in the light of such comments/ suggestions before its final implementation.

In the meanwhile, however, the Secretary General Finance, Mr.Moin Afzal, in a press interview, said that it looked difficult for the country to stop looking at IMF, World Bank, Asian Development Bank, Paris Club etc for loan inflows within perceivable future. While commending the studies being carried by the DRMC with a view to evolving a policy package to get rid of further dependence on foreign loans, he also noted that the present negotiations with the IMF did not obviously follow any such strategy. It will be after the approval and release of funds from the IMF as expected by the end of this month that a debt reduction strategy could be made applicable. He said that future loans from the IMF in particular would be avoided. The disgusting aspect of the loan financing from the IMF is obviously the harshness of conditionalities and frequent visits of review missions to the loan recipient countries. These conditionalities invariably come in conflict with the domestic economic strategies and consequently optimum results are quite often difficult to realise. The present government was, however, very keen to develop a self reliant economy and eliminate its dependence on foreign loans at the earliest, the Secretary General Finance added.

The government's concern to find ways and means whereby to stop further additions to the existing foreign loan liabilities of about $ 35 billion, undoubtedly, deserves support from all quarters in the country. The loan burden has already started making a damaging impact on the country's economic activity. The debt servicing provisions account for about 65 per cent of the revenue budget and therefore there is little money for the government to allocate for the development of the social sector. The annual repayment obligations combined with interest charges in respect of the existing foreign loans amount to almost 75 per cent of the estimated annual inflows of fresh loans, and thus the need for continuing the borrowings from abroad is linked largely with the concern to avoid defaults in repayment of previous loans. In this situation foreign loans have almost stopped contributing to the country's development efforts with the exception of specific loans for certain important projects like the construction of dams.

It is true that the economy inherited by the military set-up on Oct 12 last year was in a bad shape and the government is perseveringly engaged to improve it, despite internal and external impediments. The fact is that the low revenue generation and limited exports over the years had mounted stress on the national economy forcing successive government to rely on foreign assistance, which in turn raised foreign debt's burden. Pakistan is, in fact, had been caught up in the vicious circle quite for some time now, but no tangible measures were taken by the previous governments to obviate the situation. The past governments preferred to pursue the easy way to sustain economically by following to the International Monetary Fund and the World Bank for financial assistance in total disregard of the implications of the rising debt burden. The interest on the foreign debt alone is now eating away almost half of the country's foreign exchange earnings annually. The present government has also not come forward with any innovative solution to the nation's lingering economic crisis. On the contrary, it is also desperately striving to get the IMF-World Bank financial assistance package, to further raise the country's debt burden, rather than reducing it. It certainly ridicules the rulers professions of self-reliance. The only logical answer to the situation is that the government should seek Overseas Pakistanis help for investment and debt retirement in the present circumstances, as reliance on the IMF's prescription is bound to further aggravate our economic woes.