Pakistan is faced with low standards of living, underdevelopment, and high
poverty level, weak and unstable currency, low capital level and low GDP. All
the above problems faced by Pakistan are caused by debts which affect not only
those who acquire loans but also generations that follow.
Pakistan Government has cut back on social, health, environmental conservation,
employment and other important programs. The workers’ unions are fighting
against intensified exploitation and attacks on their rights and working
conditions. They are mounting a powerful resistance to the drive towards
privatization and the single-minded pursuit of maximum profits in the name of
global competitiveness. Constant currency devaluation for the last about five
years have costs paying the people of Pakistan, including a plunge in output, a
squeeze on living standards and the much higher inflation. For a country of an
18 Million people, majority of whom are young and have most of their lives and
dreams ahead of them – they deserve a better Government.
Debt Threat to Pak Economy
The debt problem also has internal impacts in addition to the external problem
of repayment. Our growing national debt is a threat not only to domestic
programs but also adversely affects our foreign policy. The heavily indebted
Pakistan have not established a good track record of making improvements in
either debt or poverty reduction.
The World Bank and the IMF are said to be the two largest sources of foreign
currency loans claiming working for poverty alleviation in the poorest countries
of the world and today have a strong influence over economic policies in those
countries. Both the institutions are too big, too powerful, and too
over-extended working under the influence of rich countries, especially the US,
who use the IMF and World Bank as instruments of financial diplomacy.
Both the institutions purposely extended liberal loans to our rulers which are
now hard to repay back because most of these loans were either so poorly
designed that the political elites of borrowing countries wasted on luxuries or
white elephant projects and could not reap enough income to pay them back or in
other cases, politicians, government officials and private contractors siphoned
off the funds into Swiss and other private international banks and very little
was invested productively with a view of achieving sustainable economic growth.
A Short History of SAPs and the Aftermaths
Structural adjustment programs (SAPs) were implemented in Pakistan since the
1990s to ensure the repayment of debts. The SAPs were designed by the
International Monetary Fund (IMF) and the World Bank and imposed as a condition
for further loans. The structural adjustment measures, global, unregulated free
markets and lack of protection for emerging economies all contributed to the
economic and financial crisis. As a result of adopting SAPs for getting further
loans Pakistan is constrained to divert resources away from social provisions to
repay debt; those most affected are the poor, especially women and children.
Pakistan now pays more money as debt servicing to the World Bank and the IMF
each year than it invests in social sectors like education, health and physical
infrastructure. Privatization program under SAPs has fostered the worst
manifestation of crony capitalism, when choice national assets were sold to
cronies of the ruling elite almost free of cost.
These measures have forced the country on a path of deregulated free market
economy. Under the SAPs the Government has adopted the principal of
cost-recovery for social services and the gradual withdrawal of the state from
basic health and educational services in the name of so-called ‘Public
Expenditure Review’. SAPs have failed to achieve their goals. They have not
created wealth and economic development as unregulated markets did not benefit
the poor and failed to protect the delivery of social services; the people of
Pakistan still have to suffer under structural adjustment programs.
Deadly Debt Trap
Pakistan trapped in deadly ‘debt prison’ needs concentrated short and long term
efforts to come out of it. Unfortunately, till today no workable plan and viable
strategy is devised by the government or any political party in opposition to
tackle the issue. The debt burden — Rs14.5 billion internal and $60 billion
external — is becoming unmanageable as major resources are consumed by debt
servicing. The budget allocation of Rs1.52 trillion for retiring public debt and
payment of interest during fiscal year 2013-14 would prove short as there was
surge of Rs180 billion in external debts alone during July 2013.
On July 29, 2013, the rupee recorded its lowest value against the dollar:
Rs102.4 in the interbank market, Rs104.7 in open market, but actual rate was
Rs105.5. Continuous slide of the rupee is not merely due to widening
demand-supply gap or maneuverings by unscrupulous elements. Other factors are
external debt repayments of around $1billion and speculations about official
devaluation in the wake of IMF bailout.
Devaluation will have devastating effects e.g. tremendous surge in public debt
(one rupee loss in the exchange rate adds Rs60 billion to public debt),
enhancement in debt servicing, further widening of fiscal deficit and more
expensive imports, especially of crude oil raising cost of all goods and
Already huge debt servicing is taking a heavy toll on economy — fiscal deficit
for financial year 2012-13 jumped to 8.8 per cent of GDP as shortfall on the
part of Federal Board of Revenue (FBR) alone was Rs442 billion. The fast
depletion of foreign exchange reserves — from $14.776 billion in July 2011 to
$5.153 billion by July 2013 — aggravated the situation. Heavy repayments to the
IMF and others plus financing of current account deficit amounting to $2.3
billion in 2012-13 forced the new government to approach the IMF for a bailout
The situation on internal debt is equally disturbing. The government, for the
first time in the history, borrowed from local banks Rs one trillion during the
fiscal year 2012-13. The net government borrowing from domestic banks increased
to Rs1.012 trillion between July 1, 2012 and June 28, 2013 against Rs629.9
billion over the same period last fiscal year. The federal government borrowed
Rs1.005 trillion for budgetary support as compared to Rs696.5 billion during the
corresponding period fiscal year.
The reckless and unabated borrowing from commercial banks is not only retarding
growth but also depriving private sector of the much-needed funds for
investments. It is but also forcing State Bank of Pakistan (SBP) to inject heavy
amounts of liquidity in the banking system through frequent open market
operations as high borrowings wipe out liquidity from the money market.
The only way to come out of prevalent mess is to accelerate growth, generate
employment, enhance tax revenues, and stop financing luxuries of elites and
losses of public sector enterprises (PSEs). But the present government, like the
PPP-coalition government, is not serious about it. During its election campaign,
the Pakistan Muslim League-Nawaz (PML-N) made tall claims that on assuming power
it will get rid of the “cancer of external debts”.
However, the PML-N government is knocking the doors of international lenders
more vigorously than the PPP. Besides the IMF’s lending of $5.3 billion to pay
off previous loan, Government is approaching Asian Development Bank and World
Bank for further borrowing. The main priority of the government is to rely more
on external borrowing than mobilizing own resources.
Pakistan’s National Debt Details:
Total National Debt: $56.91 Billion
Total External Debt: $67.1 Billion
Interest per Year: $5.4 Billion
GDP: $229.1 Billion
Debt as % of GDP: 24.75%
Population: 176 Million
Debt per Citizen: $321
Comparison with other Nations
Total Debts of Pakistan: $133 Billion
Total Debts of USA: $59.4 Trillion
Total Debts of China: $1.3 Trillion
Total Debts of Japan: $10.46 Trillion
Printing of Currency in Pakistan
• Rs 1.5 to 3 Billion/day
• This much amount of printing leads to Inflation
• Pak recent Inflation rate Almost 10.9%
• Inflation in other countries: Zimbabwe worst effected
• 100 Billion Zimbabwe Dollars can buy only 3 eggs.
Remedies to Reduce Foreign Debts:
• Tax Reforms
• Rapid Economic Growth (i.e. 6% in 2008 and 2.4% GDP growth rate in 2012)
• Foreign Investments
• Promote Economist & Research Scholars
• Eradicating Corruption
Mechanism to Handle External Perspectives of Pak Economy
• Reduce Govt. Expenditure
• Stable basis for Growth
• Getting of Roller Coaster Economy
• Reduce Balance of Payments
• Promote Export
• Reduce Imports
• Expanding Trade Basis
• Implementation of RGST
• Proper Collection and Utilization of Public Finance
• Promote Free Trade with Neighbors
• Encourage FDI's
• Foresightedness in Policy Making
• The challenges faced by Pakistan’s economy are quite formidable but the
salvation lies in resumption of growth that will result in decline in both
unemployment and the incidence of poverty and preserve the living standards of
the middle class.
• The re-prioritization of development expenditures, savings on recurrent
expenditure, reduction in across-the-board subsidies to public sector
enterprises and corporations, improvement in tax collection and levy of flood
surcharge tax along with the grants and donations from the international
community for flood rehabilitation works can provide the stimulus for growth.
• Governance reforms are the key to economic stability and growth in Pakistan
and should be relentlessly pursued.
• The government needs to extend the masses a helping hand to fend for
themselves, not so much by schemes like the BISP, but by providing impetus for
the utilization of the huge, idle reservoir of human and natural resources for
economic development and peoples’ well-being.