INCREASING BURDEN OF EXTERNAL LOANS
Sep 13 - 26, 2010
In the face of devastation caused by floods, slow economic growth and host of other problems, increasing burden of foreign loans is pushing Pakistan's fragile economy towards the verge of collapse.
Pakistan's current economic challenges include: declining investments and slower economic growth; rising unemployment and poverty; persisting double-digit inflation; unsustainable debt burden; depreciating exchange rate; power mismanagement; and waning confidence of the private sector.
As of July, Pakistan had a debt of $55.5 billion. That figure will jump to $73bn in 2015-16, as debts that were rescheduled after 9/11, in exchange for Pakistan's co-operation in the "war on terror", will come back into play, the experts said. It is hard reality that the donors don't trust the government to come up with the money, they added.
According to them, foreign debt has always been a sensitive national issue because heavy external borrowings not used productively become a burden on the national exchequer and retard economic development. Heavy indebtedness also provides diplomatic leverage to the "donor" and tends to impinge on the exercise of national sovereignty by people. Debts have been piled up as government seeks foreign assistance for an ever-widening range of economic activities, even in areas, where indigenous resources could be more profitably employed or in sectors in which there has been no justification for any investment, local or foreign.
Pakistan has frequently been seeking debt rescheduling and relief after adopting an ostrich-like approach unaware of the magnitude of the worsening debt burden.
The Musharraf government has repaid $27 billion ($20.5 billion principal and $6.5 billion interest) and has reduced the debt by $1 billion. It indicates the borrowings by the military-led government.
Foreign assistance is a double-edged weapon. If productively used, it can blaze the path to national self-reliance, otherwise it can make a country subservient to outside powers and lending agencies by creating perpetual dependence on them.
Economists are of the firm view that the country's financial managers need to set its priorities right to make the external loans sustainable, otherwise, it would cause such problems that would be difficult to handle. The country has been living beyond its means and the trend is continuing. Now the provinces, public sector corporations, and private sector can borrow, with or without federal government guarantees though the burden would ultimately be borne by either by the government or the national economy, they said.
According to them, the first and foremost principle in addressing the challenges listed above is to stabilise the economy. Macroeconomic stability is the pre-condition to generate growth momentum. Reduction in burden of debt would release pressure on interest rates, which will allow the SBP to reduce the discount rate, generate growth momentum, and create productive employment opportunities.
With foreign aid only now beginning to trickle in, the impoverished country has been forced to take out further loans while pleading for outstanding ones to be restructured, they said, adding already burdened by heavy debt, the country's economy has suffered a major setback.
Pakistan's main opposition leader Nawaz Sharif had proposed that Pakistan has no need for foreign aid. But, the officials found Sharif's stance an unhelpful attempt at courting and stoking nationalist sentiment amid tragedy. "It's a nutty approach," they said.
A senior PML-N leader Mohammad Parvez Malik said: "The debt-servicing burden will just kill the country." The government would have to accept serious and well thought-out suggestions of Nawaz Sharif to steer the country out of present difficult situation, he said.
He admitted that Pakistan's economy has long suffered problems because of its embarrassingly narrow tax base. But, he said no serious efforts were made to put the economy back on track.