By Tirthankar Mitra
It is no secret that Pakistan is a debt burdened country. In his previous term Prime Minister Shehbaz Sharif publicly acknowledged that even friendly countries look at Pakistan as a country always “begging for money.”
His more recent contention is that he has broken the begging bowl and the era of Pakistan asking others for money is over. Yet finance minister Muhammad Aurangzeb have of late said that Pakistan is seeking debt relief from China and other bi-lateral lenders to plug a financing gap aiming to secure a loan from IMF.
The Pakistani finance minister further spoke of engagement of Pakistan with China, Saudi Arabia and UAE for debt scheduling around $ 12 billion. Instead of being broken, the begging bowl seems to have been enlarged.
Longer loan repayment periods have been sought. The countries from whom such favour have been sought are China, Saudi Arabia and UAE. In any case seeking external support is necessary but not sufficient to bolster the economy. It is a fire fighting measure.
And as such it should be accompanied by the country’s longer term economic plan involving resolution of longstanding structural problems. But the fact remains that such a plan is yet to be produced.
Pakistan’s economy has a long history of external debts. By 1995, its external debt soared to US$ 30 billion. The external debt /GDP ratio rose from 42 per cent to 50 per cent, accompanied by increases in the external debt/ exports ratio (from 209 per cent to 258 per cent).
On the other hand, the debt service ratio rose from 18 per cent to 27 per cent. Domestic debt was pushed up to $ 909 billion by deteriorating external debt profile with the domestic debt/GDP ratio at 42 per cent.
The late 1990s was marked by a severe debt crisis. The public debt /GDP ratio shot up from 57.5 per cent in 1975-76 to 102 per cent in 1998-99. Pakistan’s public debt was rendered unsustainable after a surge in public debt/revenue ratio and interest payment revenue ratio.
In May, 1998 Pakistan conducted nuclear tests. Concerns over economic sanctions emerged in 1998. Western economic sanctions caused massive flight of capital leading to an unenviable economic situation.
The 2000s witnessed the impact of high public debt. It was identified by the Official Debt Reduction and Management Committee in 2001 contributing to a decline in growth rate to less than 4 per cent per annum.
The decade unfolded in persistent macroecononic crisis negating an initial upturn. Growth slowdown, a low growth, high inflation, an energy crisis and worsening balance of payments position marred the decade. (IPA Service)
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