Mar 14 - 20, 2011

In the wake of multiple challenges posed to the economy of Pakistan mainly on account of low growth, energy crises, high inflation, precarious security situation and high cost of doing business, foreign debt and debt servicing are hitting hard to the Pak ailing economy.

In view of shortfall in balance of trade and poor tax to GDP ratio coupled with worst tax collection system, it has become difficult for Pakistan to pay for foreign debts servicing or interest on foreign debts. The situation is much critical because it is causing more and more problems instead of resolving the same.

The hard conditionalities of foreign donors are creating difficult situation for the fellow citizens who are unable to make their both ends meet.

Pakistan's total external debt amounted to $58.393 billion at the end of December 2010. The size of the overall external debt reached to $58.698 billion during the third quarter (July-September) of the year 2010.

According to data made available to PAGE, as on December 31, 2010, the stock of public debt including the government debt, country's debt on IMF loans and interest charges, and other foreign exchange liabilities to be repaid by the government slightly slashed to $54.637 billion compared to $54.794 billion in July-September 2010. Within public debt, the government debt increased to $44.801 billion from $44.786 billion in the third quarter of the past year. Similarly, the debt on the medium to long term loans to be paid back to Paris Club and other multilateral and bilateral lending institutions also rose to $43.938 billion, compared with $43.906 billion during the period under review.

As per the data, Pakistanís debt on IMF loans stood at $8.736 billion of which $1.922 billion and $6.814 billion owned by the federal government and the central bank, respectively.

Economists believe that external financing has slowed sharply as debt sustainability concerns have grown. The IMF has withheld US$3.4 billion funds since May 2010. Bank borrowing will rise significantly, as the government stops printing money. Public debt increased alarmingly to 66 per cent of GDP by September 2010 compared with 56.7 per cent in September 2009, raising concerns over debt sustainability, they added.

According to them, the weak economy of the country is unable to face increasing burden of foreign debt, as it is adversely affecting overall economic situation.

From other sources, the government took $593 million till January 2010. These sources were European Investment Bank (EIB) $64 million, Islamic Development Bank (IDB) $293 million, International Fund for Agricultural Development (IFAD) $189 million, NORD Development Fund $16 million, and OPEC fund $24 million.

BILATERAL: Total loan from bilateral bases reached $16.665 billion on January 2010. It further composed of two sources-Paris Club Countries ($14.271 billion) and Non-Paris Club Countries ($2.394 billion).

Paris Club Countries included Austria $72 million, Belgium $36 million, Canada $516 million, Finland $6 billion, France $2.298 billion, Germany 1.937 billion, Italy $109 million, Japan $6.691 billion, Korea $476 million, Netherlands $124 million, Norway $21 million, Russia $121 million, Spain $80 million, Sweden $153 million, Switzerland $108 million, United Kingdom $10 million, and United States $1.514 billion.

Non-Paris Club Countries' external debt and liabilities reached $2.394 billion till January 2010. These countries are China $1.661 billion, Kuwait $108 million, Libya $5 million, Saudi Arabia $499 million and United Arab Emirates $121 million.

BONDS: Total liabilities on issuing different bonds etc reached $2.150 billion.

COMMERCIAL BANKS: The foreign debt and liabilities reached to $166 million.

DEFENSE: External debt and liabilities reached to $199 million on January 1, 2010.

SHORT-TERM DEBT: Total short-term debt from IBD reached to $320 million.

BANKING SECTOR DEBT: Total banking sector debt of the country reached to $196 million till January 2010, which consists of long-term $126 million and short-term $70 million.

PRIVATE SECTOR DEBT: Total private sector debt reached to $2.942 billion till January 2010.

Official sources told PAGE that the major economic indicators of the country are depicting positive signs including foreign exchange reserves, workers remittances and investments despite economic challenges being faced by the country.

According to them, production of the Large Scale Manufacturing (LSM) sector expanded 2.2 per cent in December, while export growth has also increased by 38 percent while imports increased by four per cent in January 2011.

The official data further revealed that workers remittances have amounted to $6,118 million in July-January 2010-11 as against US$5,197 million in the same period of last fiscal year showing an increase of 17.7 per cent. Gross foreign exchange reserves including foreign current deposits with scheduled banks stood at $ 17.4 billion as on March 4, 2011 while foreign direct investment (FDI) for July-January 2010-11 stood at $947 billion.

Experts are of the view that bulk of the increase in public debt was witnessed in the first nine months of 2009-10 amid higher-cost domestic debt. This forced the government to borrow from the onshore credit markets in the absence of meaningful flows of external assistance.

They were of the view that the government needs to address the real issues posed to the country's economy to overcome manifold problems. The option of getting external loans just for debt retirement and running the affairs is not the solution.

Extremism and terrorism is the biggest problem of the country while there is a need for displaying collective wisdom and sagacity at the national level in the interest of the survival of the country, they said, adding: "Peace is essential for economic stability and a joint strategy will have to be evolved with mutual consultation for rooting out the menace of terrorism. Pakistan is facing an unprecedented situation and all segments of the society will have to play their role for countering the threats being faced by the country."