Sep 13 - 26, 20

How much of the total foreign debts have been and would be spent on flood recovery efforts and projects of real economic worth and how much of it has found and will find its way back to Swiss banks should not be difficult to work out.

Being of direct relevance to the third world indebted economies, the following lines from the book Confessions Of An Economic Hit Man by the renegade US economist John Perkins are never going to lose their attraction for those interested in comprehending the intricacy and deceitfulness of global political and economic systems.

Employed as the chief economist at MAIN, he writes with reference to his trainer Ms Claudine:

"Claudine told me that there were two primary objectives of my work. First, I was to justify huge international loans that would funnel money back to MAIN and other US companies (such as Bechtel, Halliburton, Stone & Webster and Brown & Root) through massive engineering and construction projects. Second, I would work to bankrupt the countries that received those loans (after they had paid MAIN and other US contractors, of course) so that they would be forever beholden to their creditors, and so they would present easy targets when we needed favors, including military bases, UN votes, or access to oil and other natural resources.

The unspoken aspect of every one of these projects was that they were intended to create large profits for the contractors, and to make a handful of wealthy and influential families in the receiving countries very happy, while assuring the long-term financial dependence and therefore the political loyalty of governments around the world. The larger the loan the better. The fact that the debt burden placed on a country would deprive the poorest citizens of health, education and other social services for decades to come was not taken into consideration".

When seen in the perspective of Pakistan, these confessions of John Perkins will appear highly revealing. We too have had a history of mounting foreign debt. Through occasional show of economic brilliance, Pakistan managed to cut down this debt to a manageable size, but then violent and managed political changes abruptly altered the course of economic recovery and saddled Pakistan economy with "unwelcome yet essential" fresh debt burden. The table showing comparative position of Pakistan's foreign debt and foreign exchange reserves betrays the naivety of our political leadership that joined hands with the outside forces to deal a fatal blow to country's economic growth.

In June 2007, we had a very low IMF to total debt ratio - 3.6 per cent - which now stands blown up to 14.8 per cent giving IMF more control over the country's economic decisions. Similarly, official liquid reserves to total external debt and liabilities ratio was highest in June 2007 - 35.5 per cent - which now stands reduced to 23.6 per cent. Changing of these two ratios in opposite directions has placed the economy in a double squeeze position.

Floods have given a reason to both leadership and international lenders to strike fresh debt deals. The economic squeeze is set to become worse in the face of these new deals. The recent $450 million IMF emergency assistance deal for flood recovery efforts has been materialised as a result of Pakistani officials meeting in Washington in the last week of August.

Asian Development Bank and the World Bank have also mad similar commitments. The release of last two tranches of $1.3 billion each pertaining to the SBA program still hangs in balance as IMF is not prepared to show any leniency on the VAT issue. With total debt commitments of more than dollar five billion in the pipeline, the foreign debt position is set to get worse. How the economy is going to respond to the mounting debt pressure is not difficult to figure out.


Public & Publicly Guaranteed            
Medium & Long term Public Debt            
Paris Club 11,873 12,785 12,694 13,928 13,998 13,959
Multilateral 12,873 16,631 18,532 21,451 23,001 23,694
Euro Sukuk/Global Bonds 608 1,900 2,650 2,650 2,150 1,550
Others 2,841 1,533 1,709 1,705 2,610 3,107
Short Term Public Debt 152 169 25 713 652 793
A. Total Public Debt 28,347 33,018 35,610 40,447 42,411 43,103
B. Total Publicly Guaranteed Debt - 295 239 196 156 159
1.Total Public/Publicly Guaranteed Debt; A+B 28,347 33,513 35,849 40,643 42,567 43,262
2. Private Non-Guaranteed debts 3,435 1,585 2,002 2,612 3,207 3,043
3.Private Non-Guaranteed Bonds - - 250 275 137 124
4. IMF 1,825 1,491 1,407 1,337 5,148 8,077
5. Total External Debt (1+2+3+4) 33,607 36,389 39,508 44,867 51,059 54,506
6. Foreign Exchange Liabilities 4,151 839 818 1,296 1,274 1,122
7. Total External Debt and Liabilities(5+6) 37,758 37,228 40,326 46,163 52,333 55,628
8. Official Liquid Reserves 1,376 10,836 14,333 8,745 9,527 13,112
IMF Debt to Total External Debt 5.4% 4.1% 3.6% 3.0% 10.1% 14.8%
Liquid Reserves to Total Ext-Debt & Liab 3.6% 29.1% 35.5% 18.9% 18.2% 23.6%

The drying-up of foreign investment, massive domestic dollar outflow in the wake of political uncertainty and more than 40 per cent depreciation in rupee has caused the ballooning-up of external debt. The sustained and rise in inflow of workers' remittances has kept the economy somewhat buoyant. How long this buoyancy keeps the country going remains to be seen.

With the future disbursement of IMF tranches, and other international debts, the total external debt is going to be much higher than what is shown in the table. How much of the total foreign debt has been and would be spent on flood recovery efforts and projects of real economic worth and how much of it has found and will find its way back to Swiss banks should not be difficult to work out.