Jubilee Plus Calls for HIPC Treatment for Pakistan

7th December 2001

Pakistan will be hoping to use her status as the new 'best friend' of the West when she meets with her rich country creditors on Tuesday. During the Paris Club negotiating session, she will aim to bring down her $31.7bn of external debt. Servicing of this colossal debt - the majority of which was contracted under the previous military ruler, General Zia-ul-Haq - is eating up more than 60% of her domestic revenues, and exceeding her spending on social services by a factor of four.

Pakistan is not an IDA only country and as such is not eligible for the HIPC initiative. Yet, her human development indicators are worse than those of many of the HIPCs. Adult literacy is at only 44%, compared to 85% for Bolivia and 76% for Zambia, while her combined school enrolment rates are far below those countries as Honduras. Almost one third of her population are classified as poor, up from only 17% in 1987. And she is currently suffering the knock-on effects of a war she played little role in starting, which will have an estimated cost to her economy of up to $2.5bn. Already, Pakistan is suffering from higher insurance costs on exports and imports as a result of 'war premiums' being placed on her goods. Worse, regional instability as a result of the conflict is likely to further increase domestic tensions.

There are already indications that some of her bilateral creditors will be going beyond the usual 'Naples Terms' treatment - which only provides for rescheduling rather than cancellation of her ODA debt, and limited cancellation of some non-ODA debt. While this is to be welcomed, it is not enough. And, because of her exclusion from the HIPC initiative, Pakistan will not be offered any debt relief from her multilateral creditors. Instead, she will be provided with more loans - such as the $1.3bn approved yesterday with the IMF -resulting in no real exit from the cycle of debt and dependency. And this in opposition to the wishes of civil society organisations such as the Freedom from Debt Campaign in Pakistan, who have argued that such loans should only be taken on for specific poverty reduction programmes.

Jubilee Plus is therefore calling on Pakistan's external creditors - both bilateral and multilateral - to provide her with debt relief on the same terms as the HIPCs.

Critics may argue that any debt relief provided for Pakistan will be squandered on military expenditures and internal repression. This is why we are calling on tough conditions for this relief, based on the need for open, democratic and accountable government and direct poverty reduction. And in macroeconomic terms, Pakistan has recently been given a clean 'bill of health' by the IMF, who have described the countries achievements under difficult circumstances as 'commendable'

Pakistan's creditors have a choice. They can provide her with a paltry rescheduling of her bilateral debts, leaving her government bankrupt and unable to provide sufficient resources to maintain stability in the country, with catastrophic effects on the rest of the region. Or, they can provide her with a one-off opportunity to reach debt sustainability. There really are no other alternatives.