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| Opportunity
for Pakistan to solve debt woes by
John Thornhill and Farhan Bokhari As the result of a borrowing binge in the 1990s, Pakistan's total debt burden now stands at 115 per cent of gross domestic product, which many economists reckon to be unsustainable. But over the same period the incidence of poverty has also risen alarmingly, with almost one-third of the population now living below the official poverty line. Paradoxically, the conflict in neighbouring Afghanistan could provide an unrepeatable opportunity for Pakistan to tackle its most serious economic problems. Suddenly, the world's leaders have been flocking to the latest frontline state in the battle against terrorism, lavishing political praise on General Pervez Musharraf, the president, and economic promises on Pakistan. Increased bilateral and multilateral assistance, improved market access for Pakistani exports and a possible Paris Club deal rescheduling at least $12bn (£8.2bn) of the country's $38bn debt mountain are now the order of the day. "Pakistan is in a very important position in the region and in the Muslim world," says one finance official. "The world is increasingly realising that Pakistan can play a stabilising role in the region, provided the debt overhang is resolved." The sheer scale of Pakistan's debt-servicing costs, which consume about 60 per cent of total budget revenues, make it hard for the government to tackle the country's social problems - especially when the next biggest chunk of government spending is claimed by the military. But even military men are now arguing that more resources should be spent on tackling social deprivation, helping to eliminate the breeding pools for extremism. "Pakistan needs to spend far more on development for its own security interests than on defence," says Talat Masood, a retired general. "There must be more emphasis on education, housing and social services and trying to build up civil society." In order to increase spending on social welfare, says Shaukat Aziz, the finance minister, it will be essential for Pakistan to carve out the "fiscal space". But to do that Pakistan will need continued assistance from the International Monetary Fund and further help from Pakistan's sovereign creditors in reducing the debt burden - especially at a time when the country's exporters have been hit by the global economic slowdown and the fallout from Afghanistan. "There is an increasing willingness on the part of the world to make Pakistan's economy stable and to recognise the quality of the reforms undertaken by Musharraf in the past 18 months," Mr Aziz says. However, some economists are sceptical that the government really would change its spending priorities so drastically in the current environment. Sakib Sherani, the chief economist at ABN Amro bank in Islamabad, says that in the short term, at least, the government is likely to find other uses for any additional money. "I think the government's main concern is to ensure that street protests are contained and that civil strife does not spread," he says. "My own sense is that the government's immediate priority will be law and order, and beefing up the intelligence, police and border surveillance as well as addressing the refugee crisis." Multilateral organisations, such as the IMF, the World Bank and the Asian Development Bank, argue that their loans to Pakistan are dependent on the government meeting a strict set of borrowing criteria and that they will insist on more resources being devoted to social welfare. Even so, Shahrukh Rafi Khan, the executive director of the Sustainable Policy Development Institute, says it will take a revolution in mentality before the root causes of poverty in Pakistan are addressed. "Even if we do get some fiscal space we will still have a fight to change the government's priorities," he says. "The poverty schemes dreamed up by the great World Bank bureaucracy and our own bureaucracy are only band aids. There is nothing sustainable being done to empower people at grassroots level and transfer assets to the poor." |
