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-JWt™

Emporium Current Essays

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Pakistan is facing some acute economic problem due to its inadequate policy of
continued reliance on external borrowing The net result of this policy has been the
accumulation of foreign and domestic debts estimated at more than 50 billion dollar.
According to the latest figure of the World Bank, external debts of Pakistan has risen to
28 billion dollar.

Now, while the government is seriously thinking of economic Vrecovery, it finds itself
even in a worse deteriorating situation because of its inability to service its debts. For this
year the servicing of Pakistan is estimated at 680 million dollar. Reportedly, the
government is short of 100 million dollars. Therefore, Shahid Burki had to be first
"imported" from the World Bank. Later he was sent to Washington to beg for another 160
million dollar from the IMF and 200 million dollar from the World Bank! Indeed this is
very sad story whereby the economic decision-makers have willed in their infinite
wisdom to service the debts of Pakistan by taking even I more loans at a fairly high
interest rate. Such is the planning of the "genius" economists sitting in Islamabad and
those who have been "imported" from the World Bank.

I It should be noted that whenever the economic planers have

I looked outside, they worsened the problem instead of resolving it.

I Previous government claimed that they had the ultimate answer to

I the economic problems of Pakistan. They sought blindly the

I expertise of the IMF, hoping against hope to find a "lasting" solution

I to the problem. They have agreed to embrace all the World Bank.

I They even allowed themselves to sign the GATT and WTO

I agreements which envisage globalisation of the fragile economy of

I Pakistan and putting it under the mercy of the multinational

I corporation. Both politicians and economists paid regular visits to

I Washington begging and compromising the self-respect of every

I Pakistani. As usual, the IMF responded in a humiliating manner by


I imposing on the Government of Pakistan some harsh conditionalities

I including the so-called privatisation, deregulation, and economic

I reform. With the result, in a poor country like Pakistan where the

I per capita income is just below 400 dollar, the public sector has now440

Emporium Current Essays

been virtually cancelled, leaving the poor living a primitive life devoid of any decent or
basic requirement of modern life.

' Several factors contribute to the debt crisis which is facing Pakistan and is also
compromising its sovereignty. In appropriate domestic policies have resulted ia large
budget deficits and hence over-valued exchange rates. Successive government used
substantial borrowing both foreign and domestic, to maintain these policies. While
formulating national budgets, the government unfortunately opted for financing
consumption and inefficient investment rather than in investing in needed infrastructure
or productive enterprises. In every budget, successive government relied on short-
term, variable-rate loans thai made them vulnerable for rising interest rates. No even a
single government has attempted during the last 50 years to take some long-term
planning, austerity or other corrective measures to at least find a partial solution to the
problem. Every government planned for its mere political survival, forgetting in the
process the importance of the survival of Pakistan.

Pakistan as a result, has gradually become heavily burdened country with huge debts.
This state of the affairs has been compounded with external shocks, such as rise in oil
prices, sharp increase in international interest rates, a large drop in commodity prices, and
recession in the developed countries.

DEBT-SERVICING:

Economically, Pakistan continues to witness a state of decline as a result of huge burden


of debt-servicing. Since the debts of Pakistan continue to increase rather than decrease,
debt- •• servicing has, therefore, increased manifold, and the net transfer of foreign aid as
percentage of gross disbursement has declined. Net ~ transfers as percentage of gross
disbursement fell from the record level of 95 per cent in 1960-1961 to 70 per cent in
1970-71. The fall was steeper in the next decade at 30 per cent in 1980-1981. If , further
declined to 21 per cent in estimated at only 16 per cent. Given the acute economic
problem facing the nation now, it is expected that this percentage would be zero in the
financial year
1996-1997. That is, Pakistan would give 100 per cent of the borrowed money just to
service the accumulated debt.
But the problem does not end here. Pakistan might find itself in even worse situation it if
is declared as defaulter. In case of such scenario, the edifice of Pakistan economy would
fall. This might also affect the sovereignty and territorial integrity of the state since the
government of the day would not be able to finance its armed

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-ic forces; making the country vulnerable to all hostile forces internal

and external. '

However, before evolving such scenario, it is about time that the government should
address the problem by initiating a dialogue with the creditors in order to reach some debt
strategy that helps Pakistan in getting rid of its debts. According to this strategy,
substantial portions of the debts- should be cancelled and the payment of the rest should
be rescheduled.

Other countries have already pursued this policy and have been quite successful in at
least partially resolving the problem. For example, Argentina, Bolivia, Brazil, Chile,
Colombia, Costa Rica, Mexico, Morocco, Nigeria and Venezuela have reached
agreements which featured debt reduction.

Bilateral, Pakistan can also initiate dialogue (government to government level) to cancel
or at least to reduce the huge debts. An example in this regard seems to be in order. Egypt
has been able to convince the Western nations to write off 50 per cent of its debts
estimate at 50 billion dollar. That is, Western nations wrote off debts estimated at 25
billion dollar.

Similarly, the Government of Pakistan has been a trusted ally of the United States and the
Western nations. This has been reiterated recently by the US Ambassador to Pakistan,
Thomas Simons (Quetta, December 12, 1996). Successive governments in Pakistan did
everything to uphold the Western agenda against Communism including active
involvement in the Afghan jihad. Only recently, Benazir government went an extra-mile
in pursuing the American and Western agenda by declaring Pakistan a "front-line state
against fundamentalism, terrorism and drug-trafficking." With so much sacrifices, the
policy-makers should convince the rich West to write off the debts of Pakistan or at least
substantial part of it in order to enable the country to stand on its feet. Writing off
Pakistan's is a deserving case in line with Toronto Economic Summit Mandate because
Pakistan has all the characteristics specified by the aforementioned summit including:

* heavily indebted country

* having very low per capita


* having undertaking macro-economic and structural reform; and

* liberalised in investment regime.