Government has formed a Debt Reduction and Managment Committee to
derise new measures for breaking the debt trop.
From Shamim Ahmed
Feb 07 -13, 2000
A much needed work has been done by the government of Gen. Pervez
Musharraf which set up on last Saturday, a Debt Reduction and Management Committee mainly
to devise measures for breaking the debt trap in which the country was deeply entangled.
The 11 members 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 within 3 to 4 months,
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 names of the members of the committee are: Mueen Afzal, Secretary
General Finance, Dr. Ishrat Hussain, Governor State Bank of Pakistan, Javed Akram,
Secretary Economic Affairs Division; Fazlullah Qureshi, Secretary, Statistics Division,
Fateh M Chaudhri, Honorary Advisor, Bashir Ahmed, Chairman, Islamic Investment Bank,
Khurshid K Marker, Chairman Merck Marker, Dr. Ayesha Ghous Pasha, Deputy Managing
Director, Social Policy and Development Centre, Dr. Aliya H. Khan, Assistant Professor,
Department of Economics, Quaid-e-Azam University and Dr. Ashfaque Hasan Khan, Economic
Advisor, Finance Division, (Member Secretary).
Pakistan is now a severely indebted country. Its public debt exceeds 95
per cent of GDP and 600 per cent of annual revenues, the external debt at $ 35 billion
stands at 350 per cent of annual foreign exchange earnings.
Real revenue growth during 1996-99 has remained zero per cent per
annum. Fiscal deficit as a percentage of GDP remained at 6.1 per cent on an average in the
same period. These and other developments resulted in the rapid increase of implied real
interest rate on debt from 3.5 per cent of 1988-96 to 6.5 per cent in 1996-99, on an
Stagnation or fall in exports and revenues, coupled with a quantum jump
in external debt in the total public debt composition, had created a vicious debt-trap.
Pakistan's total public debt as a percentage of revenues was 423 per cent in 1976-77 that
had gone up to 604 per cent in 1998-99 As a result, cost of interest payments had also
jumped up from 32.9 per cent of 1992-93 to 42.6 per cent in 1998-99.
This situation forced Pakistan to seek exceptional financing
arrangements from the International Monetary Fund in January 1999, after facing a severe
balance of payments crisis. This also paved the way for a debt relief agreement with the
Paris Club. Independent economists feel that the government may have to seek further debt
relief from the official creditors, as its inflow-outflow position would again be strained
after expiry of the debt relief period by end-December 2000.
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 blame 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.
It is amply manifested by the terms of reference of the newly formed
powerful committee of experts which is to assess Pakistan's debt and analyse the evolution
of public debt and external debt problem both with respect to the impact of exogenous
factors and domestic policy, and decision-making process.
It 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 GDP public 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 privatization revenues can make to reduce outstanding debt, and the
additional external debt relief that will be needed during 2001-2002 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
personnel and automation needs.
Efforts to shed the heavy debt burden may not find easy sailing nor are
these short-term measures. There are reasons to believe that IMF attitude is covertly
linked to Pakistan signing the CTBT. As pointed out by SG, Finance, IMF and World Bank
have also shifted their focus from structural reforms to monitoring effects of these
reforms on poverty alleviation covering nearly one-third of the country's population. The
only course, therefore, left for the government is to depend on its own corrective
measures, reducing dependence on these aid agencies to the minimum, in the economic
recovery drive. There are already some hopeful signs of arrest and reversal of sliding
trends in the economic sector. Business community has responded positively to the CE's
economic formula, exports have started picking up, confidence of domestic investors
appears being restored which may lead to attracting foreign investment as well and cash
crops of wheat and cotton present optimistic prospects. These along with a transparent
privatization process of state owned enterprises, revival or disposal of sick industrial
units, multidirectional reformatory steps and the continuing tough slow, accountability of
loan defaulters, should all be expected to make the tough assignment of the proposed debt
management body a bit easier.