The time has come that Pakistan
move for the debt forgiveness rather than mere rescheduling
From SHAMIM AHMED
Feb 12 - 18, 2001
No doubt that another doze of timely relief from the Paris Club in the
form of rescheduling of debt of about 1.8 billion dollars has saved the country from
immediate risk of default and resultant horrendous economic cost, the fact remains that
Pakistan debt trap is getting thicker and thicker with every passing day. It has already
assumed alarming proportion and according to some, with pessimistic approach, it is now
turning into a "death trap".
Non official economists now believe that the time has come that
Pakistan move for the debt forgiveness rather than mere rescheduling and thereby adding up
liabilities for future rulers of the country. The global gathering of the rich states as
well as international financial institutions and the super-rich individual last year in
Davos decided to provide debt relief to the heavily indebted poor countries of the world
either by writing off the outstanding amounts totally or partially depending on the
economic health of the debtor country. Pakistan fully qualifies for substantial cut if not
total write off as Pakistan's average debt servicing on external debt at 64.9% of total
foreign exchange earning is higher than the Heavily Indebted Poor Countries
According to a latest staff report of the International Monetary Fund
(IMF) Pakistan's debt servicing on external debt stock of 35.5b touched a staggering level
of 8.2b, including principal amount of 6.529b and interest of 1.68b, which is almost 64.9%
of the total foreign exchange receipts of year 2000.
The IMF report estimated that the total debt relief during 1999-2000
amounted to 7.3b for Pakistan, including official bilateral, commercial and private debts
(rollovers of foreign currency deposits). However, despite this massive relief, 30% of the
country's current foreign exchange earnings were consumed in debt servicing alone.
The paper has reckoned that change in the structure of debt stagnant
exports and other macroeconomics vulnerabilities contributed to this rapid growth of
external liabilities. The IMF staff has given a cross-country analysis of all the low and
middle-income countries, South Asia region and the HIPC's which clearly depict that
Pakistan should seek debt forgiveness from the official bilateral sector.
Out of the three basic criterions of the HIPC initiative, Pakistan
already falls in below 500 per capita income group, and its debt to export ratio is also
of similar nature. The third condition for being considered as the HIPC country is that
the country should be classified for only the International Development Assistance (IDA)
loans of the world. However, Pakistan, along with China and India are categorized in the
mixed group, which qualifies both for IDA and IBRD loans.
Given the current burden of external debt servicing on national
resources, and inability of the country to remain current on its international debt
obligations, Pakistan should seriously approach the international community for seeking
debt forgiveness, as debt reschedulings may not be enough in future.
The government had appointed a committee last year headed by former
World Bank Pakistani Vice president, Dr. Pervez Hassan to recommend measure through which
the debt burden, which appeared almost unmanageable could be reduced. The committee known
as Debt Reduction and Management Committee was to submit its recommendations by Dec. 31
has not been able to finalise its report so far. The committee is finding it difficult to
make recommendations how to curtail the country's over 60 billion dollar (both domestic
and foreign) debt because of the continued failure of the government to increase exports,
remittances and revenues of the country.
Also the committee is believed to have called for restructuring defence
spending to reduce the debt burden. It is of the view that funds coming in the shape of
foreign loans should not be used for defence purposes. The proposals of the committee
which are already late, are likely to be presented to the federal cabinet in the form of
"summary recommendations". Before that, the committee wishes to make these
recommendations public to have the input and suggestions of the people in order to make
"The mandate of the committee is to propose both short and
long-term plans to meet the challenge of huge debt but I should tell you very frankly that
our position is that of an advisory body as we have nothing to do with the
implementation", said Dr. Pervez Hassan while taking to newsmen informally. There was
a need to legislate restrictions on increase in the non-development expenditure and lay
down conditions no future foreign loans were taken without full justification. "We
are not against seeking foreign loans but this job should be dealt with utmost care so
that there is a certain utility of each loan", he added.
He regretted that exports and revenues had not increased in the first
six months of 2000-01. 'This is a serious issue and the government must ponder over it so
that our stagnant exports could increase and more revenues received in order to have a
meaningful poverty alleviation programme in the country", Dr. Pervez Hassan said.
But this was not the first time that a committee or an expert group had
been set up to suggest measure to reduce the debt increase exports and revenues. Many
times before such efforts were made these recommendations were not implemented. What is
the magnitude of the debt is a question that perhaps nobody exactly knows even in the
higher authorities. Only rough estimates are made to meet the immediate requirement and no
organization has any authentic figure about the overall size of the debt burden.
Previously it was always recommended by official and unofficial
quarters to the successive governments to reduce the debt burden by increasing exports and
generating more revenues. This time again, the committee would end up suggesting the same.
The fact of the matter is that there is no seriousness for achieving any target.
The Ministry of Commerce had given a 10 billion exports target for the
current financial year but it does not seem to be achievable, with Minister of Commerce
Razzak Dawood conceding that this "target was getting tougher and tougher."
He called for achieving a 20 per cent increase in exports during the
remaining five months of the current fiscal to meet the target. But it appears that once
again the government would end up getting Rs.8.5 billion or maximum Rs.9 billion through
exports. The Chief Executive is all for improving the overall economic situation and
chairs every now and then meetings over the issue. The question is whether he can fix the
responsibility on any department for failure to increase exports which were actually down
by 8 per cent in the month of December compared to the same month in 1999. Somebody should
explain why there is no value addition and no diversification of exports. The private
sector is interested to export only traditional items like raw cotton, textiles, rice,
carpets, sports goods and surgical instruments. Pakistani exporters have failed to compete
with other countries of the region. India, Bangladesh and Sri Lanka have been successful
in increasing their exports by 20 to 25 per cent while we could increase only 10 per cent.
Likewise there is a shortfall of Rs.14 billion in revenues as the CBR
could collect Rs.210 billion against the target of Rs.224 billion fixed for the first
seven months of the current financial year. Under these circumstances, fears are being
expressed that the CBR would not achieve its target of mobilising additional Rs.90 billion
to achieve its revenue allocation target of Rs.430 billion which had already been revised
downward by Rs.5 billion.
Furthermore the government has received one billion dollar less in
foreign remittances due to prevailing hundi and havala systems. The reason is the
continued poor performance of the Pakistan banks operating outside Pakistan.
Under these circumstances what could be delivered by the Debt Reduction
Committee is a million dollar question and how would the government meet this situation is
still to be seen.
There is almost a consensus amongst the independent economists that it
is high time Pakistan should move for debt forgiveness. The West has gained a great deal
from she technological advances, communications revolution and the information age. So,
for a period of about ten years or so, it should be able to share this large wealth with
the poor countries to help them pull out of poverty. And their debt forgiveness should not
be confined to the least developed countries. Countries like Pakistan should also have the
benefit of debt forgiveness, though not of the entire debt.