Options for Pakistan
International borrowing, as a form of economic relations between countries, existed even in the Middle Ages, but in recent history the development of international lending, borrowing and credit in its true form developed only with the advent of world capitalism.
During its early stages international borrowing and credit was used only for production and development purposes, and it helped create a unified world capitalist market.
But with the transformation of the ‘free’ enterprise system into monopoly capital, the imperialist character of international credit was formed.
In the past 60 or so years, the involvement of industrially developed capitalist countries of North America (USA and Canada), Europe (UK, France, Germany and other countries of EU) as well as Japan and more recently some of the BRICS nations (China And Russia), in the movement of international finance is effecting the functions of the credit market.
In the second half of the 20th century and beginning of the 21st century, international credit or foreign debt has transformed itself into an important instrument for exporting capital as well as for suppression and enslavement of one country (borrower) by another (lender).
One of the main characteristics of international credit or foreign debt during the Cold War era (1951-1989) was its unproductive use. Another characteristic of foreign debt during modern times is the involvement of the states directly or indirectly in its payments and repayments because of which it has taken a more political and strategic role than an economic one.
There cannot be any doubt in the minds of economists, sociologists, political scientists or the general public that external debt has become a burden for poor nations rather than the much-advertised source of financial help to these countries.
Cardinal Hume, Archbishop of Westminster, once said, “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”.
In the second half of the 20th century and beginning of the 21st century, international credit or foreign debt has transformed itself into an important instrument for exporting capital as well as for suppression and enslavement of one country (borrower) by another (lender)
In the words of Kofi Annan, former Secretary General United Nations Organisation, “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 un-payable debt”.
Obasanjo, Former Nigerian President, stated, “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 World Bank has been lending to Pakistan since 1952
During this span of 63 years it has sanctioned about 93 loans and 136 credits. The World Bank’s highest borrowers are also the most corrupt according to the transparency international index.
Pakistan’s experience shows that even with the best of planning, most of the development aid is misguided or badly implemented and it is a favourite debtor country of the World Bank (among the top 12).
Yet the loud demand for more aid continues, ignoring the important factor that development depends 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.
Pakistan’s debt position in 2014
Pakistan started receiving its so-called `foreign aid’ back in 1950-1951. At that time the share of grants and subsidies in the aid package received were 70 per cent and that of loans and credits only 30 per cent. Also, at that time foreign capital was mainly used for investment purposes, development of infrastructure, energy and water resources as well as project aid.
According to the words of Economic Survey of Pakistan 2014-2015, “Public debt stock (of Pakistan) reached at Rs15, 534 billion as at end March 2014 (Ministry Of Finance, Government of Pakistan, 2014).
As per the statement of Mr Ishaq Dar, the federal minister of finance on 4th February 2015, “Every Pakistani (man, woman and child) is indebted by Rs90,000 or nearly Rs100,000 per capita.”
In 2014 it is provisionally calculated that the public debt of Pakistan is Rs15,534 billion, with its external debt component at 30.3 per cent at Rs4,711 billion.
It should be noted that firstly from 1990 till 2014 the public debt of the country rose substantially (more than 19 times) from Rs801 billion to Rs15,534 billion. Secondly, although in percentage terms, the external debt component of the entire public debt has decreased from 53.4 to 30.3 per cent in the same period. But in absolute numbers the external debt of the country has also risen substantially (more than 10 time) from Rs428 billion in 1990 to Rs4,711 billion in 2014.
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 successive governments have failed completely to fill the gap in the trade balance, balance of payments, budget deficit, or resource gap over many decades. Poverty has grown during this period. Pakistan is among the most illiterate countries 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 the backdrop of a high population growth rate amid low economic growth, ever-increasing national debt is a recipe of disaster for the future, which seems unsustainable.
Three approaches to solve the debt problem
Introduced by former president of Cuba, Fidel Castro, the first option is that the total debt of the third world should not be paid back. The concept behind this option is that 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, therefore the loan should automatically be liquidated or “nationalised”.
Introduced by Former Secretary of State of USA Hennery Kissinger, 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.
The donors are at fault as much as the ruling elite of Pakistan is, and the time has come that both these sections should take the responsibility away from the poverty-stricken people who should not be made responsible twice over for the mistakes and misconduct of others
The third approach, or the middle path, which is being taken by most 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 through mutually agreed and mutually beneficial negations. (Jubilee International 2000)
For Pakistan’s debt problem
The option of debt retirement through a mutually agreed formula and approach between the government and its donors is the only option.
An agreement should be reached that the amount of financial resources saved from debt retirement should be spent on the uplift of the poor and other deprived section of the society through community participation and under strict monitoring of the donor agencies and organisations.
The donors are at fault as much as the ruling elite of Pakistan is, and the time has come that both these sections should take the responsibility away from the poverty-stricken people who should not be made responsible twice over for the mistakes and misconduct of others.
On one side, finances meant for their uplift and economic development were misused and misdirected, away from the people to 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 spend.
The government of Pakistan should take it as its priority number one to retire all outstanding debt in order to generate enough resources to spend 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 that was misused or embezzled by subsequent rulers and administrative elite in Pakistan, so that the burden of the people would be eased and an era of sustainability and social prosperity might commence with their economic and scientific help.
Those who have misused the funds should be taken to task, in whatever nation they may reside for the time being in accordance with local and international laws, so that the plundered wealth of the country can be returned to the rightful owners – the people of Pakistan.
The entire process needs negotiations and agreements on principal between the government of Pakistan and the donors under a mutually agreed formulae.