Pakistan’s external debt averaged USD 65.223 billion from 2002 until 2021, reaching an all-time high of USD 130.632 billion in the fourth quarter of 2021 and a record low of USD 33.172 billion in the third quarter of 2004.
Pakistan is one of the 52 countries facing a severe debt crisis. The most critical problem faced by its economy is repayment and servicing of external debt.
Persistent borrowing to service this liability has created a spiral with more borrowing generating an impending economic crisis.
This high degree of indebtedness has made Pakistan extremely vulnerable to economic shocks and weakened the country politically vis-a-vis powerful external lenders. It has also greatly compromised Pakistan’s ability to invest in education and healthcare.
The picture looks dismal when we take a glance at the human development index where Pakistan ranks (154), worse than India (131) and Bangladesh (133). With two years of Covid-19 crisis, its economy is in the woods, marked with rising debt stock, higher inflation, and large-scale unemployment. The external debt has risen to $ 130 billion.
Debt servicing devours all other resources. In 1970, our total external debt stood at $3.5 billion. In 2018, it was $93 billion. In 2021, our external debt exceeded $125 billion. In 1970, our total payment on account of the external debt servicing was at $256 million.
In 2018, we paid $6 billion. In 2021, it was around $12 billion. Under the present circumstances Pakistan is projected to allocate $ 27.8 billion to meet external debt service payments between September 2020 and June 2023. This figure includes payments to the IMF, the World Bank, ADB and China.
Out of the total debt, 48% is multilateral, 30% bilateral and 22% commercial. It is almost confirmed that all of the bilateral and commercial debt has been used to finance the current account deficit and there has been no capital investment from foreign borrowing.
Out of the multilateral debt also, a substantial sum has been used for consumption purposes under the 21 IMF programmes that we have undertaken from 1992 to 2021 as no major infrastructure project like a dam has been built. The last major project completed was Tarbela Dam; it was in 1976.
To summarise, Pakistan as a state and Pakistanis in their personal capacity are living on borrowed money for their consumption expenses which they incur in foreign currency. A deeper analysis of this borrowing reveals that Pakistan is totally under the control and clutches of the USA and its allies as far as borrowing is concerned.
A softer schedule for borrowing for Pakistan was allowed when we supported the US wholeheartedly in the Cold War, the Afghan War and then in War Against Terror. In short, Pakistan has been leveraging its geography for financial gains.
This trend that has developed with the continued leveraging of its geostrategic position pre-supposes that it is the responsibility of the West to pour their tax dollars in our country and we as Pakistanis are not ready to pay our due share of taxes.
The developments that took place in the past few years, especially after the departure of the US from Kabul after August 14, 2021 reveal that our honeymoon is going to be over soon. The author is not interested in complicated economic scenarios which are presented with a view to dispelling the severity of the situation. As a simple accountant and financial analyst this scribe can safely say that the country cannot continue to operate its external account with this mindset. Hence the need for a reset.
As a pampered country, Pakistan as the relevant actor for the West in its Cold War and now a US-led West’s perceived war against China, has not learnt to earn its means. Since inception, Pakistan’s civil society, government, politicians, media and even economists have been totally oblivious of the catastrophe this state is going to face if we continue to live in the same manner as we have been after the secession of East Pakistan in 1970.
The state of Pakistan, which was economically weak when created in 1947, has been brought to the verge of an economic collapse after 1970 due to short-term planning and popular politics. In economic terms, the state and ruling elite are living beyond means.
Rampant profligacy: Pakistan as a society and state — duly supported by government policies — is guilty of profligacy. To support this assertion two cases may be cited where foreign exchange is involved.
The number of four-wheel drive vehicles that we see in Pakistan, especially in the parking lots of national and provincial assemblies, the lavish dinners and lunches and marriage functions, the Umras and Ziarats we undertake from untaxed money, the travel we make on foreign airlines, consume imported mineral water, toiletries that our upper middle and upper classes use, the retails market which do not use daylight and remain open till late after midnight using energy generated from imported fuel are criminal and suicidal wasteful acts.
However, there is no national or social concern on these matters nor are there apparent or implied actions to undo these practices. The result is, that only during 1976 to 2021 Pakistan had an accumulated increase in external debt of over $ 75 billion.
Both the major political parties are equally involved in this mess. One party justifies the establishment of an imported coal fired power plant in Sahiwal, a place 1,000-kilometre away from the port, while the other allowed over 10,000 CBU 1500 plus CC Vehicles in 2020 and 2021.
The primary question for us is to identify the person or entity that will act to rectify this incorrect anti-common man mindset. If we seriously follow this subject, the discussion in our society is not to correct the mistake but how to delay or defer the catastrophe; or in other words, postpone-the-hour-of-reckoning approach.
Political rhetorics and the fragility of the political mandate indicate that they are all engaged in point scoring and are actually the part of the problem and not the solution. General elections, if held in 2022 or 2023, are likely to result in more fragmentation and fragility of mandate.
The other option is a dictatorial regime. The history of the country reveals that such regimes are a bigger problem than any democratic setup.
Furthermore, the national and international environment cannot support any such attempt. In this situation the responsibility ultimately lies with the civil society to educate and convince the masses that there is a need for responsible and a unified narrative on the economic side.
This is a very difficult task; however, the ray of hope lies in the fact that Pakistani youth, which is equipped with social media is examining the matter very deeply and this force which at present is a mob, can either be used like Shari Baloch or streamlined for the sustainable development of the country. The option is open for the political players and the establishment alike.
Copyright Business Recorder, 2022
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