Keeping all parameters at same pace, we conclude that
debt volume will decline significantly in coming future
Pakistan's total stock of external debt and foreign
exchange liabilities grew at an average rate of 6.2 percent per annum
during 1990-99. Pakistan's external debt and liabilities had reached an
untenable level of $37.6 billion by the end of the 90's as compared to
$21.6 billion in the early 90's, posing a serious threat to the economic
prospect of the state.
The main causes of the rapid growth in the external
debt were the persistent current account deficit, thoughtless use of
borrowed money, stagnant exports and a declining flow of foreign
Pakistan's debt burden as percentage of foreign
exchange earnings was around 256 percent in 1989-90 that rose to 335.4
percent in 1998-99. This statistic shows that the foreign exchange
earnings were almost stagnant during the period of 90's. All these
factors reduced the country's ability to pay its debts; for this reason
Pakistan was forced to acquire expensive loans. But now, over the last
five years, effort has been made to achieve debt sustainability in the
country and as a result, Pakistan has witnessed a current account
surplus over the last three years in a row.
In the end of 90s Pakistan's economy was at the verge
of default, and Pakistan was acquiring most of the loans with the sole
purpose of debt servicing. Due to default fear, Pakistan's credit rating
was touching danger line. Therefore, the country faced very hard terms
of loans. Now, this factor has been eliminated and with high foreign
exchange reserves, we are having soft terms for loans. Getting rid from
IMF has also added some repute to Pakistan, besides contributing towards
betterment of credit rating.
Following a consistent approach of debt reduction,
Pakistan has succeeded in reducing the rising trend in external debt and
foreign exchange liabilities. Pakistan's external debt and liabilities
have declined by $ 1.24 billion - down from $ 37.86 billion in 1999-00
to $ 36.62 billion by end-March 2005. The surplus in current account
coupled with a continued build up in foreign exchange reserves and the
higher foreign exchange earnings, the pre-payment of expensive debt and
debt write-off are the major factors responsible for the reduction in
the total stock of debt.
The data of Pakistan's external debts and liabilities
shows that the country's external debt and liabilities have reduced from
51.7% in 1999-00 to 33.1% in 2004-2005. Following the same trend, the
debt and liabilities as part of foreign exchange earnings has also
reduced from 297.3% in 1999-00 to 145.9% in 2004-2005.
The external debt and liabilities in the year
2004-2005 is estimated at $36.62 billion, showing an increase of $1.362
billion as compared to 2003-2004. The main reason of this rise in debt
stock is the exchange rate adjustments and the net inflow effect.
One of the most important indicators of measuring the
country's ability to pay its loans is Debt/GDP ratio. Fortunately, this
ratio has declined very favorably for Pakistan in the last few years.
All other indicators are also showing positive movement in this regard.
Thus, keeping all parameters at same pace, we conclude that debt volume
will decline significantly in coming future.