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Pakistan's external debt

The sufferers are the poor alone

May 21 - Jun 03, 2001

There can be no second opinion about the fact that the poor of this country are the real sufferers of the ever-growing external debt which has narrowed down the breathing space for the have-nots of this country. The backbreaking burden of the taxes, charges, surcharges and additional surcharges levied even on the essential items like electricity or POL products is becoming unbearable with every passing day.

Pakistan's total external liabilities were piled up to the size of $37.8 billion on June 30, 2000 which certainly have gained more heights during the period spanned over June 30, 2000 to June 30, 2001.

According to figures released by the State Bank of Pakistan, Pakistan's total external debt outstanding on June 30, 2000 was $32.7 billion or 53.8 per cent of the GDP. If other foreign exchange liabilities such as foreign currency accounts are added, the total external liabilities rise to $37.3 billion or 61.3 per cent of GDP. Debt servicing on account of these liabilities amounted to $7.8 billion or 95.9 per cent of the country's realized export earnings in previous financial year. The picture for the current year to be ended on June 30, 2001 more or less is same as it was last year.

Neither during previous year nor in the current financial year, the economy was able to pay the amount for debt servicing or to meet economy's demand for imports, more than half of the contractual debt servicing has to be rescheduled.

The financial experts while analyzing the economic conditions hold various governments responsible for throwing the economy into the swamp of external and internal debts. They say that instead of developing a just taxation system for collecting revenues by expanding the tax base, they found it easy to borrow to run the state affairs in a lavish style. The corrupt government officials took advantage of the cumbersome tax procedures for personal gains. According to a tax payer who for example pays Rs10,000 to the tax department, has to pay another amount of Rs10,000 and another amount of Rs5000 for other expenses. In all, he has to pay Rs25,000 out of which only an amount of Rs10,000 goes into government exchequer. It is the complexities in tax system, which made the situation worse confounded.

The temptation of the kickbacks never allowed creation of import substitutes with the country; hence the current account deficit continues to grow.

The corrupt system never allowed the national economy to develop its own means or resources, hence reliance on the borrowed money either for debt servicing or to meet day to day expenses is now the culture of the economy.

Although the Federal Finance Minister Shaukat Aziz has expressed his confidence that the country has the potentials to get back its economic independence and has claimed to double the exports within next 4 years.

The IMF has acknowledged the economic reform agenda on which the present team of the economists is working, yet it has pointed out certain areas, which need improvement.

The areas identified by IMF where pace of structural reforms need to be accelerated to provide a level playing field for private economic activities and restore investors confidence in Pakistan's economy. The areas where pace of reforms has to be accelerated include taxation, energy, and financial sector including banks.

IMF delegation led by Clausse Enders feels that structural reform process was slow in these areas which include tax, energy, financial and trade sectors. Structural reform agenda must take precedence over all other issues in the coming budget for 2001-2002. These reforms must contribute to development of transparent and predictable economic and regulatory environment that would help provide equal opportunities to the private sector to grow and stimulate the return of private capital to Pakistan.

About reforms in tax and customs sector, the mission maintained that the objective could be achieved through measures that simplify the present system and broaden the tax base in a fair and transparent manner.

In the energy sector, the objective was to fully liberalize energy imports and prices while privatizing or restructuring state corporations of the energy sector under the supervision of the transparent and autonomous regulatory bodies. IMF has also called for allowing these regulatory bodies to work independently and without any pressure from the government. These bodies desired to be fair with the corporations and the consumers as well.

In the financial sector, IMF recognized that progress was being made in the area of de-regulation, restructuring of the state-owned financial institutions and in the area of the financial transparency and accountability of the Central Bank. But it says that more was still to be done in this regard.

Whatever the outcome of these suggestions may be, the fact remains that the borrowers have no option but follow the suggestions of the lenders.

In order to avoid sorrows of the borrowing, though it is too late yet there is no option but to learn to live within means both by the ruled and the rulers.