Debts are not fortunate for both the developed and
the developing nations. Most of the developing nations like Pakistan are
trapped in debts and now borrowing more just to pay interest charges but
its principal amount is still outstanding. The debts or external
liabilities always after a certain point hit the economy and change the
country's growth prospects.
Pakistan long days back in 1950s started to borrow
from other countries and International Financial Institutions (IFIs).
Whenever a country adopts foreign borrowings tool it must have some
objectives e.g. i) to boost the economic activity ii) to develop the
infrastructure iii) and to increase the activities that can increase the
exports. Pakistan, initially, adopted this mode to address all these
areas but failed to manage foreign assistance and wasted these funds in
non-productive activities and most of these assistances went into
pockets of certain people by one or the other mean.
So, with the passage of time donor countries asked
for higher returns and also reduced repayment period by arguing that
Pakistan has higher country risks. Meanwhile political instability and
poor law and order situation in the country have also dampened the
utility of these loans.
Now coming towards facts and figures that very simply
can reveal the fact, how severely the country is caught in debt trap and
with the passage of time its grip is tightening. IFIs started donations
in 1950s on strict terms and conditions, as the country risk was high at
that time because Pakistan was like a newborn baby. Later on after good
relationships and better economic prospects these institutions softened
their terms and conditions in 1960s and 1970s. The average rate of
return was charged 4.6 per cent in 1950s and was lowered down in 1960s
and 1970s. But later on increased to 4.8 per cent and 4.4 per cent in
1980s and 1990s respectively.
Pakistan's accumulated disbursed and outstanding
external debt (medium & long-term and publicly guaranteed) by end
March 2002 was around $ 26.3 billion. The stock of external debt during
1990-91 was $ 15.5 billion and reached to $25.4 billion by the end of
1999-2000, reflecting a net increase of $ 9.9 billion or 63.9 per cent
at the end of 1990s. In other words, almost one billion US dollar of
external debt was accumulated every year in the 1990s. External debt has
grown at an average rate of 5.4 per cent per annum during the 1990s with
8.0 per cent per annum during the first half and almost 2.9 per cent per
annum in the second half of the 1990s, mainly due to heavy reliance on
short-term borrowing in the later half of the decade. Now coming to
another analysis that will reveal, seriousness of the matter, if we
analyze debt to gross domestic product (GDP) ratio. The ratio was 34 per
cent in 1990-91 but increased to 41 per cent in 1999-2000 due to
addition of capitalized interest in debt stock as a result of debt
rescheduling agreements with the donors. This ratio further moved upward
to 43.7 per cent during 2000-01 on account of second Paris Club
Now observing the matter from another angle that is
in real terms shows Pakistan's external debt has mounted in the range of
252 to 327 per cent of the external earnings during the 1990s, which is
significantly higher than the acceptable limit of 225-250 per cent.
All above analyses about debt's principal amount and
Pakistan's situation has come to the point where it has become difficult
to pay the interest on the principal amount. Overnight Pakistan's debt
servicing liability has also shown a rising trend and rose 8.5 per cent
per annum. Pakistan breathed for a while after some debt relief from the
"Paris Club" and other donors. Foreign Economic Assistance
during July-March 2001-02 amounted to $ 981 million and debt servicing
as per cent of GDP increased to 3.3 per cent during 2000-01.
After detailed analysis and discussion about the
debt's facts and figures now it is the time to discuss some means that
can pull the country out of this trap. In the current situation one
school of thought says that only an increase in the exports can help
Pakistan to overcome this problem but at the same time it should be
clearer in minds that exports alone can't sort out the problem. We need
to boost local demand and also to attract foreign investment especially
in the capital market. Reason is that whatever is being paid for imports
and debt servicing can land back in the country. Here I would like to
discuss that in the recent past the United States enjoyed from this
phenomenon as locally they developed consumer market that generated
trade deficit. But at the same time the US authorities worked on the
capital market and made it attractive with higher returns and low risks.
So in this way the US was able to bring back the money paid for imports.
So making it simple Pakistan needs to build the confidence of the
investors that ultimately can help us to pay actual debt as well as its
Pakistan is a competitive exporter in textile goods
but never tried to develop its own brands in the international market
that in the long run will pay. For that purpose a comprehensive
promotion campaign should be launched abroad.
In the current situation Pakistan also needs to
introduce revolutionary changes in the agriculture sector. Agriculture
is the backbone of our economy. Pakistan's all major exports are
agriculture based e.g. rice, textile goods and leather. And is feeding
around 68 per cent of the population as most of the Pakistan's
population is residing in countryside. So just with hi-tech agriculture
techniques and better living standards in villages the living standards
can be lifted that in return can provide vast market to the local
manufacturers and also help to increase the agriculture based exports.
For that in the town and big cities technical
education should be promoted that can increase value added activities
and also reduce wastage of resources. And one key and the most important
thing that can be achieved is the introduction of substitutes for the
imports, which will help to save the foreign exchange reserves. In order
to promote local manufacturers and exporters, media war should be
started at a national and International level accompanied with
exhibitions. So, only a better planning to introduce revolutionary
hi-tech agriculture and efforts to increase value added activates can
help Pakistan to come out of this debt trap.