Pakistans sovereignty and independent decision making capability have undoubtedly been adversely affected due to influence which the lending countries and international institutions have come to exert upon Pakistan. Different experts are of the view that debt is not a bad thing provided that economy grows quick enough to provide the tax revenues needed to meet interest payments on time. That will increase capital inflow and will have positive effect on economic growth and standard of living of the people. The increase in external debt from $ 5 billion in 1988 to $ 38 billion today is directly tied to poor economic planning and its associated corruption, unlimited power of Executives etc.
Pakistani government spends roughly one fifth of its budget on its military, further limiting potential spending on social improvements and programs. Pakistan uses 350,000 barrels of oil per day. Of this, 293,000 barrels per day are imported. Also, 1.1 million short tons of coal are imported each year. The combination of these two alone make up a huge part of the over one billion dollar trade deficit. Half of government expenditures are dedicated to fulfilling debt repayment obligations. In order to finance these payments, additional grants and loans are required each year totaling approximately 25% of revenues.
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 significant government policy, particularly to run the economy and to service the debt is practically non-existent. The first thing which is considered before making decision of borrowing for any project, is generation of cash flow, which is used for payment of interest and installments of the borrowed money. Pakistan has borrowed money with out conducting proper analysis using financial tools and ignoring calculation of cost and return of the debts. Further delay in management of external debts will have failing consequences. Therefore, I recommend that the government should take urgent actions for management of external debts; otherwise, we are not away from default.
KHUSHBAKHT MUKHTAR
Lahore