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| PAKISTAN’S DEBT POSITION AND THE QUESTION OF DEBT RETIREMENTBy
Dr. Qais Aslam Lahore / Multan 2001 Introduction Quoting from the Simon Briggs, UK, Jubilee 2000 People’s Millennium Write-Down Book, "In 1984 we said feed the world now we say free the world". External Debt situation has perhaps become the most important problem for the countries of the developing world after the problems of poverty and ensuring human resource development in the beginning of the new millenium. It has been seen that the nations that are the poorest in the world are also the most highly indebted. These developing nations are referred to as countries of the South in the North- South context or poor in the poor-rich context. In these heavily indebted poor countries (HIPC’s) the revenue resources and the earnings from exports are being spent on debt servicing instead of badly needed expenditures on health, education, uplift of women and population welfare. Neither is this money being spent on investments, nor economic growth or scientific research and development (R & D). There can not be any doubt in the minds of economists, sociologists, political scientists or the general public that external debt has become a burden for the poor nations rather than the much-advertised source of financial help to these countries. In the words of the late Cardinal Hume, Archbishop of Westminster, "Whatever the detailed history of today’s debt ridden countries, nearly all have one key fact in common: that those who could be blamed the least, the poorest people in the poorest countries, have suffered the most". The English Chancellor of the Exchequer Gordon Brown said, "The debt of poor countries is a great moral issue of our day and this decade. It is the greatest single cause of poverty and injustice across the earth and potentially one of the greatest threats to peace". He added, "We must cut the debt and do so now". The international financial organizations as well as the donor nations themselves have realized that till such time the debt burden of the highly indebted low income nations (HIPC) of the world will be reduced, there is no hope that the people of these countries can develop. The Governments and policy makers of these (HIPC) nations are reluctant to reduce their dependence on foreign loans and credits. Therefore their poverty levels will not be reduced, nor can these nations develop their human and economic resources. In the words of Mikhail Gorbachev, "Nothing is more important than the debt question. It is absolutely necessary to resolve the problem as soon as possible. We cannot keep waiting". Low levels of investments in the developing countries are due to a low level of income and employment, that is due to a low level of labor and capital efficiency. Most of the money earned through GDP growth rates, export earnings and revenue collection is being drained out of the country through debt servicing and spent on unproductive defense and other administrative expenditures. If in the HIPC nations self-sufficiency is not achieved, debt burden is not reduced and investment on human resource development is not increased, these nations will not be able to stand together in the communities of nations and sustain economic growth levels. These nations will not be able to protect their environment and advance the development in scientific research and technology, because they are spending a major portion of badly needed financial resources servicing the old debts. All of these need heavy investments, and the money has either been embezzled by their rulers or paid back to the donors as debt servicing. The great African leader Julius Nyerese said, "Is it right that we starve in order to pay our debts?" Pakistan, India & Bangladesh are the largest borrowers from World Bank in 1997-1998 fiscal years. These countries in South Asia contain over one-fifth of the humanity, consisting of 1.2 billion people. However these South Asian countries spend less than five percent of its combined GNP on its people, due to which growing population has become a liability rather than a precious human resource. Human deprivation in South Asia is massive. It is the poorest region of the world, where five hundred million people live in absolute poverty. According to the World Bank, this region contains forty percent of the world’s absolute poor, surviving on less than one dollar a day. UNDP Human Development Report 1996 shows that nearly two-third of the population in South Asia is deprived of basic human capabilities. Widespread human deprivation in South Asia contrasts sharply with the militarization in the region, as two of the largest armies in the world (India & Pakistan) are being maintained in South Asia. It is the only region where defense budget is continuously growing mainly due to the nuclear race. South Asian States are far below the global twenty percent targets with public spending. In Pakistan, it is only 3.2 per cent. In India - 6.8 per cent, in Sri Lanka - 8.1 per cent, in Bangladesh it is only 10 per cent. In the words of James D. Wolfensohn, the President of World Bank, "The spirit of the new millenium has perhaps been best captured this year by an extraordinary movement" "to cancel external debt in the poorest, most heavily indebted countries". "But the bigger and tougher questions to be faced is will these achievements endure"? "Debt relief that supports such efforts is clearly sound investment. But it cannot replace development assistance. There is a widely held fiction that masses of money are poured into aid. In fact, industrialized countries spend roughly one quarter of one per cent of their gross domestic product for assistance to the world’s poor countries". He further writes, "About future lending? Access to external capital is fundamental to any countries’ development, but borrowers and lenders need to be vigilant about the long-term sustainability of the resulting debt". The World Bank has been lending to Pakistan since 1952. During this span of 47 years it has sanctioned about 93 loans and 136 credits, totaling US$10 billion The World Bank highest borrowers are also the most corrupt according to Transparency International Index. Pakistan is a favorite debtor country of the World Bank (among the top 12). Pakistan’s experience shows that even with the best planning, most of the development aid is misguided or badly implemented. Yet the loud demand for more aid continues, ignoring the important factor that development depend on effective use of existing aid. Squandering of money on projects was in the interest of the ruling elite, as the interested parties used or deposited a large portion of these funds in their personal accounts. It becomes the responsibility of the World Bank to ensure (which it did not) that this money was spent for the specific purpose. This money was meant to be invested in the uplift of the poor people and the economy, but instead it was embezzled and misappropriated by different governments in the country. Quoting Mr. James Wolfensohn, "to end poverty we must fight corruption. It is central to our mission. Corruption is a cancer in the body politic, a tax on the poor".
Pakistan’s ever increasing debt burden and the cost of servicing this debt is perhaps the single most important economic issue in the country today. Economic policies of the governments have failed completely to fill the gap in the trade balance, balance of payments, budget deficit, or resource gap over the many decades. Poverty has grown in the country during the last ten years. Pakistan is among the most illiterate countries of the world; school going children are out of school and working on road side workshops or restaurants; women participation in economic growth and decision making is very low. Child mortality rate as well as women mortality in childbirth (in the country) is one of the highest in the world. General health conditions of the population are very poor, so is the income generating capacity of a large number of the population. Under this back drop, high population growth rate, low economic growth rate and ever-increasing national debt are a recipe of disaster for the country’s future which seems unsustainable under the circumstances. It is the present and long-term sustainability of the economy that has become a problem both for the economy and for poverty stricken people of Pakistan. The very foreign resources that are badly needed for the country’s economic stability and sustainability have become a burden on the dwindling resources of the country and a threat to its sustainability. Since the fifties the country has been relying greatly on foreign aid and assistance. The main reason for this is that the resource generation is not equaled with the resource consumption. Wrong and lopsided economic policies, the inefficiencies of the government and misappropriation, and embezzlements by the political and administrative elite of the country during the many successive regimes in Pakistan are largely responsible for the mess. The economic problems of Pakistan are quite deep rooted and diversified in nature. At both the macro and micro economic fronts, the economy is experiencing its worst crisis. The yearly growth rate of the country during the last decade has been estimated to be around 4.8 per cent per annum only to be nullified by a population growth of an average of 3.1 per cent per annum. Population in 1999-2000 was 137,5 million people..
Foreign aid is considered useful, provided it helps to overcome bottlenecks in the way of economic development of a country. In the 1950’s and the 1960’s approximately 70 percent of the Pakistan’s foreign aid package was non-returnable grants and only approximately 30 percent were loans and credits. Of this, about 80 percent were spent on development expenditures and only 20 per cent were spent on non-development purposes. Somewhere in the 1980’s and the 1990’s the situation had reversed. Approximately 80 per cent of the foreign aid package for Pakistan was being spent on defense and other non-development expenditures, almost all of the foreign resources for the country were in the form of loans, credits and direct investments at quite harsh conditionalities and heavy interest rates. In the 1990’s and the year 2000 all of the foreign assistance has been spent on debt servicing. At the cost as high as in Pakistan, foreign aid has become a burden, rather than a blessing. The most important problem faced by the people of Pakistan is theirs absolute poverty. Low per capita income has also put the country among the poorest of the low-income nations in the world. According to the World Bank Report 2000-2001, Pakistan is among the High Indebted Countries & Low Income Nations of the World. A bigger part of poverty in the country is due to low investments in the socio-economic uplift of the people at all levels. Poverty in the county has grown in the past decade. Its effects on the people have been devastating. Education levels have gone down and illiteracy is rampant. Women are not considered equal and are not given equal opportunities in the economic field. Health sector is in tatters. Children are dying of curable diseases. Economic opportunities in the country are disappearing fast because of lack of substantial economic growth in the country. Environment is degrading fast and affecting the lives and sustainability of both the people as well as the fragile ecology. The result is diminishing income generating opportunities for present sustainability, as well as diminishing natural resources for future sustainability. As an example of Pakistan’s low investment in human development, the South Asian Institute’s Report 1998 clearly states, "While South Asia is the most illiterate region in the world, Pakistan is among the most illiterate countries within South Asia". The report states. "Education has suffered from a myriad of issues including under investment, failure to implement five-year plans, and a lack of purpose and direction in its policy". In a total adult population of 76 million, 49 million (almost two-third) are illiterate, of which women constitute almost 60 per cent, 37 per cent of the boys and 55 per cent of the girls in the primary school-age population are out of school. More than half of the children drop out of school before completing the fifth grade, and the average mean years of schooling is only 1.9 years, which is the lowest in the region, compared to 3.9 for developing countries". Pakistan is a nation that is spending only 2.2 percent of its budget on Education, 0.5 per cent on its health. And where 80 per cent of its villages are without clean drinking water, sewerage, hygiene facilities, and 60 per cent are without electricity. Where one child under the age of 5 dies every 40 seconds and one child is born every 10 seconds. Where one mother dies in child birth every 90 seconds because of lack of health facilities, where the per capita income is US$450 per annum which is less than US$ 500 World Bank poverty line. Despite numerous IMF agreements since the early 1980’s there was little fiscal adjustment over the last two decades. The average fiscal deficit during the last five years has been close to 7 per cent of the GDP with no clear downward trend. Pakistan now ranks among the most indebted of the lowest income nations (HIPC) of the world. One should not have any doubt that Pakistan’s present and future debt situation is very grim, bringing an extreme pressure on the already fragile economy of the country. Although the official circles, economists and policy makers are concerned about the debt situation, the newspaper reports are full of this grim picture and the statements from the rulers echo their concern, there is very little being done to reduce this debt burden. In reality new debt agreements are being signed in order to run the day to day business of the government as well as to pay back old liabilities. Any substantial government policy, particularly to run the economy and to service the debt is practically non-existent or chaotic. As Human Governance Index, out of 58 countries mentioned in the index in The South Asian Development Report 1999, Pakistan ranks 52 in Economic Governance, 48 in Political Governance, 47 in Civic Governance, 52 in Humane Governance and 54 in Human Governance.
Debt & Economic Situation of Pakistan
The balance of Payments data also indicates that the pressure on the external sector continues unabated, and the trade deficit is widening. The exports earnings of the country are not enough to finance the import receipts, so what will finance the gap of the current balance of payment’s deficit and also the debt servicing of the country’s external indebtedness.
The GDP growth rates are being undermined by the high population growth rates and after repeated efforts the economy seems not to be picking up over the 4.8 per cent growth rate mark. Rather the recent official reports suggest that the economic growth rate has gone down to a little above 3 per cent. The 6 per cent GDP growth rate mark envisaged by the policy makers seems just a mirage on the horizon. Nor it seems that the population growth rate is not coming down from the 2.6 per cent growth rate. In these conditions increasing domestic savings rates in order to finance domestic investments and also realize enough resources to pay back foreign and internal liabilities seems impossible. In order to give the position of Pakistan’s indebtedness compared to some of the other countries of the region, we look at the external debt of 4 South Asian nations in 1998.
Pakistan is in a situation of a classical debt trap, where new loans are being taken in order to service old loans. A simple Debt Burden Index (DBI) tells the story. By dividing external debt as a percentage of GDP, and the debt growth rate by the GDP growth rate, we can clearly assess how heavy the debt burden has become for the nation and its people.
In other words all the new debt that Pakistan envisages to receive from different sources will be spent on debt servicing of old debt and just half a billion dollars for showing an increase in the foreign exchange reserves of the country. Not a single cent of this new debt will be spent on the development projects, education, health, poverty elevation, and uplift of women or population welfare in the country. Therefor it becomes just ridiculous that the country should undergo such hardships and keep on becoming insolvent by taking more debt in order to pay the old one’s.
The State Bank report 1999-2000 states, that besides external liabilities, of US$37.30 billion under different categories, Pakistan is committed to pay in rupee liabilities 1.72 billion dollars on accounts of frozen foreign currency accounts and on various foreign currency certificates.
The meager resources of the country are being depleted due to the stringent conditionalities of the donors, debt servicing regime of the government as well as the high defense budget and other non-development expenses of the federal and provincial governments of Pakistan. The main thrust of the revenue collection of the federal government is on indirect taxation in the country followed by direct taxation from the salaried classes. The entire revenue collection for the fiscal years 1999-2000, 2000-2001 is not enough to pay back the interest and principal on the foreign and internal debt that has been accumulated in the country.
World Bank Criteria for Heavily Indebted Poor Countries (HIPC): In order to tackle the problem of debt retirement, we must also look into World Bank’s own criteria of retiring of writing off debt of countries that are heavily indebted as quoted by IMF in its report. The criteria is as follows:
From the above statistics it is seen that Pakistan qualifies for the World Bank debt retirement criteria. The only reason according to the IMF report is that Pakistan is receiving aid from World bank which excludes Pakistan from those HIPC countries who’s debt will be retired in the near future. Quoting IMF report, "With a stock of public and publicly guaranteed debt amounting to US$ 28.8 billion at the end of 1996-1997, (which has increased to US$ 37 billion in the end of 1999) Pakistan may be regarded as a highly indebted developing country. As a ratio of exports of goods and services, and private transfers, the public and publicly guaranteed debt was close to 220 per cent and the related debt servicing reached 28.5 per cent at the end of 1996-1997, and the related debt to GDP ratio has been contained to less striking levels of 43.8 percent of GDP in 1996-1997. A slight decline from 44.5 per cent in 1994-1995. However, the decline in the external debt to GDP ratio has not reduced Pakistan’s vulnerability to exchange rate fluctuations, because of the SBP forward cover mechanism for FCD’s". "Over the last two years, foreign liabilities of commercial banks and NBF’s have increased by more than 22 per cent to US$ 4.8 billion – half of this stock are liabilities to foreign banks, reflecting mainly deposits with their subsidiaries in Pakistan, the rest is held by private nonresidents. Total external debt, including these liabilities and the private non-guaranteed debt amounted to US$ 35.7 billion at the end June 1977". "Of the stock of public and publicly guaranteed debt at the end June 1996-1997 of 87 per cent is related to official concessional and non-concessional aid, including project and program loans as well as food aid. The remainder consists of loans from commercial banks and the Islamic Development bank (US$ 1.7 billion) Fund Credit and other medium term and short term debt. The stock of public and publicly guaranteed debt to official creditors was evenly distributed between multilateral and bilateral sources. As of end March 1997 multilateral creditors were, by descending order, the World Bank Group (US$ 6.6 billion, of which US$3.6 billion from IDA) and the Asian Development bank (US$ 4.4 billion). Japan was the first bilateral creditor (3.7 billion), followed by United Sates (US$ 2.7 billion), Germany (US$ 1.5 billion) and France (US$ 1 billion). At the end 1996-1997, un-disbursed commitments amounted to another US$ 7.5 billion, 60 per cent of which was from multilateral sources". The report further states, that " Except for negotiation on the debt service to Russia, following the breakdown of the Soviet Union (which centered on valuation issues), Pakistan has always been current in its debt obligations, and has not benefited from any sort of debt rescheduling since 1981. The major agencies of Credit Rating rate Pakistan’s sovereign risk at non-investment grades. However, following the 1996-exchange crisis, they have downgraded Pakistan within this grade (to B2 for Moody’s and B+ for Standard and Poors). The average annual interest rate on public external debt has been stable at 3.6 per cent. (Although Pakistan meets the debt and debt service criteria used to define highly indebted poor countries, it is not classified by the World Bank as a HIPC case because of its eligibility for IBRD resources.)" Sanctions and Conditionalities on Pakistan for Further Debt from International Donors Not only that Pakistan is heavily indebted, and that the conditionalities from the World Bank and the IMF for every new loan and credit negotiated are rapidly becoming stringent, the sanctions imposed by the international community on the country after its nuclear blasts were harsh. The Main thrust of the conditions laid down by the twin international donor organizations (IMF and the World Bank) is as following:
The conditions of the richer and more advanced donor nations to Pakistan for resumption of economic aid to the country include among other:
Because of the conditions and sanctions imposed on Pakistan, it has in reality become increasingly difficult for the country or its government to negotiate any substantial debt and aid from its richer partners. The government and the policy makers should realize that the only way for them to enhance the economic growth of the country is to rely upon local and foreign investments rather than foreign debt. In order to facilitate the country’s economic growth the reliance on foreign debt will have to decrease. This decrease will only be made possible, if the government decides to start negotiations with its donors for retiring its already very burdensome foreign debt – a debt which has become unpayable anyway. Social and Economic Effects of Mounting Debt In Pakistan A weak economy means that the country can not generate enough resources for investment purpose or in order to increase the standard of living of its people. And interestingly enough, a weak economy, low investments, employment and income also mean that the country cannot even start sustaining itself sufficiency, nor pay back already taken and misused loans from external and internal sources. In 1994-1995 the over all Foreign Investment in Pakistan was US$ 1532.3 million (US$ 442.4 as Direct Foreign Investments and US$ 1,089.9 million as portfolio investment). While in 1999 – 2000 the over all Foreign Investment in Pakistan was US$ 392.8 million (US$ 360.5 as Direct Foreign Investments and US$3 2.3 million as portfolio investment). This shows that between 1994-1995 and 1999-2000 a decrease in direct foreign investment by US$81.9 million, and a substantial decrease in portfolio investment by US$ 10,57.6 million, which means an overall decrease in foreign investments to the tune of US$ 1,139.4 million. The Asian Development Bank (ADB) in its regional economic outlook stated that the ratio / percentage of people in Pakistan living below poverty line in 1990 was 25.2 per cent. Now this has increased to 34 per cent. The number of people living under the poverty line or a dollar a day increased from 17.6 million to 44 million according to Economic Survey of Pakistan 1999-2000. The incidences of calorie-based poverty in Pakistan increased from 17.3 per cent in 1987-1988 to 22.4 per cent in 1992-1993 and to 32.6 per cent in 1998-1999. The World Bank Report "Partnership and Development" states that "Pakistan’s low growth rate through the 1990’s made poverty worse". In the statement of John Wall, the Director of World Bank for Pakistan, "In Pakistan poverty increased during the 1990’s compared to the 1950’s and 1970’s". Development expenditure has dropped from 8 per cent in the 80’s to 6 per cent in early 90’s and now to 3 per cent of the GDP in 2000. Almost all of the increase in the share of interest payments has come at the cost of development. That explains the poor economic growth rate of Pakistan. The share for development in total government spending which was 40 per cent in 1980 and 25 per cent in 1990 has gone down to 13 per cent in 2000, while interest payments increased from about 18 per cent in 1980 to 30 per cent in the 1990 and 32. 7 per cent in 2000. The cut back in development spending at a time when the overall public investment rate was declining had very adverse effects on the economy, depressing growth rates and limiting progress to meet social goals. The growing public and external debt burden has caused a sharp slow down of Pakistan’s economic goals from over 6 per cent per annum in the 1980’s to less than 4 per cent in the late 1990’s. This automatically leads to an increase in poverty. Foreign savings accounted for only 10 per cent of our investment in 1999-2000 because of rising debt servicing payments. This is a very high decline. It is ironic that while the country has been borrowing in the name of economic development and prosperity of the people, the real result of debt is growing poverty in the country. This has many lessons for both the government of Pakistan as well as the donors to Pakistan. How to go about Debt Retirement Kofi Annan, Secretary General United Nations Organization, has called for "a fair and transparent process for debt cancellation – an objective and comprehensive assessment by an independent panel of experts not unduly influenced by creditor interests. Such an assessment should not be restricted to HIPC countries. But should also encompass other debt-distressed low income and middle income countries. There should also be a commitment on the part of creditors to implement fully and swiftly any recommendation of this panel regarding the writing off of unplayable debt". The vicious circle of poverty has ensured that the much-needed resources for the human resource development as well as for the increase in investment levels in Pakistan do not materialize. Under this backdrop, repayments and heavy interest on the already taken loans and credits of the country are becoming an added burden. The policy makers are seeking new loans just to pay back the old ones and to keep the country solvent. Something, somewhere will have to break under this burden. The already poverty stricken people will go towards added burden of poverty, famine and disease. The ultimate responsibility of this looming disaster will lie on the shoulders of both the government of Pakistan and the international donors. The financial crunch will have to come from the rich nations. It is better to reduce the debt burden of Pakistan now, rather than to pay more to keep the people alive in the future. Although Pakistan prizes itself at the fact that it has never defaulted on its foreign liabilities and its debt repayments and servicing, the way the economy is slowing down it is just a matter of time before the country would be at the brink of bankruptcy and therefore default. When we look into the statistical data given above and the statements coming out of all the official and other economic literature we clearly see that Pakistan is a nation which has not defaulted at the cost of its own people. Pakistan is a nation which has not defaulted on its debts repayment because it takes more loans and credit in order to pay back old debts, and not that the solvency of the government and economy has any thing to do with the repayment credibility of the country. According to The Governor of The State Bank of Pakistan, Pakistan’s only motivation of entering into an agreement with the International Monetary Fund (IMF) was to secure rescheduling of its external debt after implementing all conditions as "prior action are rejection options of unilateral moratorium". The Governor said that the government’s capacity to fully service its external debt had not improved during the last 30 months, there were two options – unilateral moratorium or further rescheduling". In his statement, he said that, "The option of unilateral repudiation or moratorium would have caused unbearable hardships for the country" he was referring to the confiscation of Pakistani assets abroad, if Pakistan unilaterally does decide to default on further debts. Dr. Ishrat Hussain, said IMF insisted before reaching an agreement , on tougher measures and up front action from the government of Pakistan as "Pakistan had displayed a poor track record in the past." There are three approaches to solve the debt problem of Pakistan, when the government has not spent this amount of US$ 35 billion on the development of its people. Instead, most of this money has been embezzled by those who were in subsequent governments in Pakistan, floundered through bank debt default and spent on non-development expenditures like defense and debt servicing and the lifestyles of the policymakers and politations. There is a lobby, which believes that the total debt of the Third World should not be paid back, because these nations have already paid back to the donors much more than the principal amounts in the shape of interest on these loans over the years. The president of Cuba, Fidel Castro is a strong advocate of this approach to liquidating debt of the developing nations. The theme was also echoed in the meeting of the Group of 77 in Havana at the end of the year 2000. This approach favours the recipient nation, but it does not favour the donor nation, therefore is strongly opposed by the advanced nations of the world, who also happen to be the main donors of International AID and money transfers. Also the future economic relations between the North and South nations is hampered by this approach. The second approach is of moratorium on debt. In other words having agreements between the donors and the recipient nations to freeze the debt for a minimum of 20 years, and this amount should be spent on the uplift of economic growth in the recipient nation. When required growth rates are achieved, the debt and interest should be paid back. This approach favours the advanced nations and donors, but does not favours the recipients of AID and money transfers, because even when required growth rates in the economy are achieved, they will go down when the interests on the debt would have been accumulated to amounts huger than the principal amounts and therefore become unplayable by the recipient nations even at higher growth rates.
The third approach, or the middle path, which is being taken by most of the developed nations today in respect to the international debt crisis of HIPC’s is to write off a bigger part or all of the debt of these nations through mutually decided criteria and norms. This is called debt retirement. For Pakistan’s debt problem the option of debt retirement through a mutually agreed formula and approach between the government and its donors is being suggested in this paper. Jubilee 2000 are proposing a fare and transparent arbitration process (FTAP) which could replace the existing mechanisms with the Paris and London clubs as well as the international financial institutions. All of which are biased towards the creditors and thus can not come to fare and sustainable solutions for indebted countries. The idea is that the debtor government declares its readiness to service its obligations but only after it has gone through a fare and transparent process with its creditors instead of the traditional procedures. These latter are:
Therefore a fairer and more transparent process could be applied, once the debtor government demands this from its creditors. The worldwide freedom from debt campaign is currently encouraging debtor governments to do so with the backing of social movements in the creditor and debtor countries. It should be noted in the first place that the total external debt of Pakistan from Islamic countries is US$ 684.8 million or a little below US$ 1 billion and US$ 324.2 million interest on loans when the Islamic countries believe in interest free economies. It could be safely stated that it would not be a problem for Pakistan to negotiate a debt relief or debt retirement of a total debt worth of US$ 1 billion from these countries. US$ 1,716.2 is debt from non-consortium nations. Out of which US$ 748.3 million is principal amount with no interest from S. Korea, followed by approximately US$ 390 million from neighbourly China and approximately US$ 300 million from Russia and another US$ 113 million from Australia. This leaves another US$ 165 million for the rest of the non-consortium donors - an amount which can be negotiated for retirement with these nation. Pakistan owes US$16.12 billion (US$ 3.0 billion in interest) to international organizations and another US$ 12.53 billion (US$ 2.15 billion in interest) to consortium nations. The debt to international organizations and consortium countries is the core of the issue with a total interest of above US$ 5 billion and poses the immediate problem. These nations and organizations have already agreed in principal to write off debts to the HICP for low-income nations in the world. As seen from the statistics above and the tables given in the document, Pakistan is a highly indebted low income nation of the world, its debt and debt servicing figures exceed many folds its export earnings and revenue figure. The problem situation of Pakistan is seen as more acute than even the very criteria set down by the World Bank itself, and therefor Pakistan qualifies as a nation who’s debt liabilities should be written off and retired. If we look into the list of debt defaulters and government functionaries (officials as well as politicians) who have embezzled public money and have defaulted on their bank loans, we get a glimpse of the extent to which the people of Pakistan have been robbed of their share of the nations wealth. "Borrowers, mostly from the country’s elite, are estimated to have defaulted on about 211 billion rupees or US$ 4,220 million. Another news item states, "Loans worth of Rs 40 billion (US$ 800 million) have been rescheduled, and many among the big defaulters have either got their loans rescheduled / written off or escaped. The argument being made here is that when US$ 1 billion a year minimum was being spent on defense from foreign sources as announced by the State Bank Report 2000, and as more that US$ 4 billion has been embezzled in the previous government, and an equally obnoxious amount in the previous government subsequent to the last one, most of the money coming from abroad has not been spent on the people’s social and economic uplift. Therefore is it just and fair that the people should be held liable for the fraud of its powerful elite. The responsibility of the donor nations is as much as of the government of Pakistan, because they also knew of the plunder and misuse of the funds which were coming from their sources for specific development and uplift purposes and were subsequently not spent on these projects. The control and accountability network put down by the donors for every penny of theirs spent in Pakistan as well as their respective media were conscious of the fact that the money was not being spent on the right target. Even still the donors close their eyes to the plunder and kept on financing all subsequent regimes and politations of the country. In the words of the Nigerian President Obasanjo, "The people who gave these loans knew that the money wasn’t being used wisely. Perhaps they even took their cut. Yet the ordinary people have to pay back these loans. This is the injustice of it all. The burden of our debt is immoral". The donors are as liable for these faults as much as the ruling elite of Pakistan. Time has come that both these sections should take the responsibility away from the poverty-stricken people who should not be made doubly responsible for the mistakes and misconduct of others. On the one hand, finances meant for their uplift and economic development were misused and misdirected away from the people to the foreign bank accounts of the rich and powerful (ironically in the very banks of the donor nations), and on the other hand, by paying back the principal as well as the interest on the debt that they did not spent.
The Government of Pakistan should take it as priority number one to retire all the debt of Pakistan in order to generate enough resources to spend them on the social and economic uplift of the country through human development, economic growth and investing in research and technological development. The donor nations should also fulfil their commitments to the people of Pakistan by retiring their part of the debt, so that the burden of the people would be eased and an era of sustainability and social prosperity in Pakistan might commence with their economic and scientific help. Those who have misused the funds should be taken to task, in what ever nation they might reside for the time being in accordance to local and international laws, so that the plundered wealth of the country can be returned to their rightful owners – the people of Pakistan. All this process needs negotiations and agreements on principal between the government of Pakistan and the donors. Jubilee International 2000 and subsequently the organizations that have replaced it by name and purpose can help mediate and negotiate such agreements of debt retirement of Pakistan under a mutually agreed formula. According to Joseph Hanion, "There is no simple answer to how much debt should be cancelled and what it would cost. Jubilee 2000 believes that the amount and mechanism of debt cancellation cannot be imposed by the creditors and must be negotiated between creditor and debtor through a fair and transparent process. Thus the manner of calculating ‘unplayable debt’ will vary between countries and regions. However in three International conferences and the International members of Jubilee 2000 have set out very clear demands on what kind and levels of debt must be cancelled". The parliament, civil society as well as the NGO’s which work with them should be involved in the dialogue between donors and the government of Pakistan:
What Debt Relief Would Bring To Pakistan? Rupees 313,273 or US$ 6,265.46 as debt servicing if spent on human development in Pakistan and the alleviation of poverty in the country will constitute an average income of US$ 500 per year for 12.5 million house holds which is the World Bank’s poverty line criteria income. Total external debt of US$ 32 billion will constitute an average income of US$ 500 for 64 million house holds if the entire debt of the country is written off. Pakistan’s Ambassador and permanent representative to UNO, Mr. Shamshad Ahmad while addressing the 55th cession of the UN General Assembly on November 18, 2000, said, "In the Highly Indebted Poor Countries (HIPC’s), children were ten times less likely to live up to the age of five than those in rich countries". He continued, " Without alleviation of debt burden, there was little likelihood that national policies could be fully implemented and the goals of WSC (World Summit of Children) achieved anytime in the future". Debt relief in the form of debt retirement if negotiated, should save for the country a total of US$32.0 billion dollar (the amount of external public debt of Pakistan) or an average of US$ 6.3 billion yearly as debt servicing. Financial resources if spent on human development can put through school the large amount of school-age children that are out of school; training of teachers both for primary and secondary schools, as well as for higher educational levels; ensure clean drinking water for most of the villages in Pakistan; provide basic health facilities in the rural areas and ensure that children below the age of five and mothers during pregnancy do not die in the country. These financial resources can be used for building infrastructure in Pakistan in order to expand market structures so that investment opportunities and employment levels can be enhanced. Resources saved from debt retirement can be used to develop energy resource base in the country that can ensure cost effectiveness in attracting foreign investment so that the country can embark upon a more self-reliant economic growth model with enhanced human resources, developed infrastructure and cheap energy sector. All of them can go a long way for ensuring higher incomes, consumption and saving patterns in the country and bigger and comprehensive economic growth levels. INDEX Contents of Tables Table 1 Pakistan Total External Obligations and Liabilities 1-3-2000 In Million Dollars Table 2: Internal Debt Outstanding on 31st June 2000 (In Million Dollars) Table 3 Public Debt In Foreign Exchange (US$ Million) Table 4: Exports, Imports & Trade Balance Of Pakistan (In Million US$) Table 5: External Debt Burden 1998 Table 6 Debt Servicing Payments Due Including Rollover Of Central Bank Deposits (8-3-2000 In US$ Million) Table 7: Debt Servicing as Percentage of GDP Table 8 Sources And Uses Of Foreign Exchange 2000-1 (July-June) In US$ Million Table 9: Debt Servicing Payments On Foreign Loans 1998-1999 (In Million US$) Table 10: Federal Government’s Overall Budgetary Position (In Million Rupees) Table11 Public Debt 1998 (For Pakistan 1999) Table12: Public and Publicly Guaranteed External Debt Disbursed & Outstanding As On 30/June/2000(Estimated) In Million US$) Table 13: World Bank Commitments, Disbursements, & Net Transfers In South Asia Fiscal Years 1993-1998 (In Million US$) Table 14: Operations Approved during Fiscal Year 1998 In Pakistan by the World Bank Table 15: Foreign Investments 1999-2000 (In Million US$) Table 16 Economic And Social Indicators Of Pakistan 1999-2000 Table 17: Balance Of Payments Of Pakistan 1999-2000 (In Million US$)
Table 2: Internal Debt Outstanding on 31st June 2000 (In Million Dollars)
Table 3 Public Debt In Foreign Exchange (US$ Million)
TABLE 4: EXPORTS, IMPORTS & TRADE BALANCE OF PAKISTAN (IN MILLION US$)
TABLE 5 EXTERNAL DEBT BURDEN 1998
TABLE 7: DEBT SERVICING AS PERCENTAGE OF GDP
TABLE 8 SOURCES AND USES OF FOREIGN EXCHANGE 2000-1 (JULY-JUNE) in US$ MILLION
TABLE 9: DEBT SERVICING PAYMENTS ON FOREIGN LOANS 1998-1999 & 1999-2000 (IN MILLION US$)
TABLE 10: FEDERAL GOVERNMENT’S OVERALL BUDGETARY POSITION (IN MILLION RUPEES)
TABLE11 PUBLIC DEBT 1998 (FOR PAKISTAN 1999)
TABLE12: PUBLIC AND PUBLICLY GUARANTEED EXTERNAL DEBT DISBURSED & OUTSTANDING AS ON 30/JUNE/2000(ESTIMATED) IN MILLION US$)
TABLE 13: WORLD BANK COMMITMENTS, DISBURSEMENTS, & NET TRANSFERS IN SOUTH ASIA FISCAL YEARS 1993-1998 (IN MILLION US$)
TABLE 14: OPERATIONS APPROVED DURING FISCAL YEAR 1998 IN PAKISTAN BY THE WORLD BANK
TABLE 15: FOREIGN INVESTMENTS 1999-2000 (In Million US$)
- Direct Investment consists of cash, capital equipment brought in and reinvested earnings. - The 1999-2000 figure are of July 1999-march 2000 only
TABLE 16 ECONOMIC AND SOCOAL INDICATIORS OF PAKISTAN 1999-2000
TABLE 17: BALANCE OF PAYMENTS OF PAKISTAN 1999-2000 (IN MILLION US$)
REFERENCES
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