Members of the opposition, both within and outside the parliament, have been extremely critical of what they claim is the government's increased reliance on external resources to meet its rising expenditure requirements.
That external resources and liabilities have increased dramatically since 2008 cannot be denied. In 1999, when Nawaz Sharif was the country's Prime Minister, though Musharraf unseated him in a coup d'etat three and a half months into the year (on 12th October 1999), total external resources and liabilities stood at 38.9 billion dollars - up from 20.5 billion dollars in 1990. In effect, the ten-year increase was 18.9 billion dollars with an average increase of 1.89 billion dollars per annum.
By the end of the Musharraf era in 2007, when he was still in effective control of the country, total external debt and liabilities rose to 40.5 billion dollars or a mere 1.6 billion dollars over his eight years of rule. Those who claim this as a success of the Musharraf era economic policies must keep two facts in mind. First and foremost, prior to 9/11/2001, Musharraf was a pariah in the world polity and external assistance had all but dried up which accounts for a steady decline in the country's total external debt and liabilities during 2000 and 2001. Secondly, subsequent to 9/11/2001, after the US attacked Afghanistan, Pakistan emerged as a US ally, which led to a pouring of grant as opposed to loan assistance into this country.
This accounts for the small increase in total external debt and liabilities during the Musharraf years. Be that as it may, it is relevant to note that Musharraf's honeymoon in terms of Western grant assistance was over by 2005 when total external resources and liabilities were estimated at 35.8 billion dollars. The next year, in 2006, our foreign liabilities rose to 37.6 billion dollars. Part of the reason for declining international grant assistance may have been due to the realisation by Western powers that the Pakistani dictator was not following their dictates with respect to the war on terror either in letter or spirit; but part can also be attributed to Musharraf's initial failure to focus US attention on Pakistan's developmental needs and the integral role that poverty was playing in fuelling extremism. This failure was rectified in around 2005 when the Kerry-Lugar bill, envisaging 1.5 billion dollars per annum for specifically civilian development purposes was first envisaged. However the Kerry-Lugar bill was approved in 2009 and claimed by the Zardari-led government as a democracy dividend.
The purpose of the Kerry-Lugar bill, according to the US government website, "is transformational: instead of a transactional, tactically-driven set of short-term exercises in crisis-management, Kerry and Lugar aim to build a deeper, broader, long-term strategic engagement with the people (and not just the leaders) of Pakistan. A premise underlying the Kerry-Lugar approach is a simple thought-exercise: Following the 2005 Kashmir earthquake, the United States devoted nearly $1 billion to relief efforts and reaped a greater reward in popular support than any amount of public diplomacy could generate."
Relations between the two countries became strained soon afterwards. As far as Pakistan was concerned relations came under strain due to US stance on the Raymond Davis case and Osama bin Laden killing; while bin Laden's five-year sojourn in the garrison town of Abbottabad is seen by the US as a deliberate attempt by, at best, rogue elements of Pakistani security agencies to provide sanctuary to America's most wanted man. In addition the US accuses Pakistani military of not launching an attack on several Taliban groups opposed to the US but not opposed to Pakistani officialdom.
The Kerry-Lugar bill, the website adds, delinks military and non-military assistance and while the level of security aid was to be determined on a year by year basis, civilian assistance was envisaged at 1.5 billion dollars per year for the next five years. It is symptomatic of the strained relations between the two countries that military assistance is ostensibly pending verification of bills submitted by the Pakistani army, while a major portion of the pledged and approved civilian assistance under the Kerry-Lugar bill has yet to be disbursed, belying the claim by the website that the two types of assistance are delinked.
With grant assistance shrivelling up considerably due to rising tensions with the US Pakistan's total foreign debt and liabilities jumped from 46.2 billion dollars in 2008 to 52.3 billion dollars in 2009 and 55.9 billion dollars in 2010 as per the Economic Survey 2010-11. In other words, the increase from 2007 (in just three years) was 15 billion dollars while the figure quoted for 2011 Q3 was 59.5 billion dollars. This gives a grand total of 4.75 billion dollars per annum rise. The IMF would account for little more than half of this amount or 8.9 billion dollars. The rest was debt procured from other sources that include multilaterals extending loans on the market OCR rate and tapping bond markets abroad though this gradually became almost prohibitively expensive given the state of world economy in general and ours in particular.
Why has our external indebtedness risen so dramatically during the past four years or so? One major reason is the inter-circular debt that has fluctuated from between 150 to over 400 billion rupees. The government has failed to enforce payment by the government departments/ministries or state owned entities for fuel/electricity that they consume. In addition, the PPP-led government has been accused of all round poor governance - be it deliberate that accounts for corruption as reflected in the four years of massive scams that the public has been subjected to as well as nepotism in appointments, to unintentional that is the outcome of mismanagement and failure to take decisions in a timely manner and, once taken, to enforce them. The outcome has been a massive rise in expenditure of ministries/entities like PIA/Pakistan Steel/NICL. At the same time, the Federal Board of Revenue has failed to raise tax collections to levels envisaged in the budget because of lack of implementation of tax reforms that include tax structure and administration.
What's the short answer? Raise revenue and slash expenditure. But fourth year running Pakistan's rich federal and provincial legislators and senators are unwilling to allow a tax on their main source of wealth: farm tax and taxing the wealth of Pakistani nationals stashed abroad. At the same time, expenditure needs to be curtailed - not from development allocations that fuel growth but current expenditure that does not, which includes desisting from raising the salaries of civil servants and military personnel as a policy decision designed to deal with inflation; subsidies must also be eliminated but consumer groups as well as the Competition Commission of Pakistan must be strengthened to be effective watchdogs to ensure that collusion and arbitrary price rises are in check. This strategy, it would appear from statements made by the country's economic managers, is not in consideration. The focus remains on fire-fighting and the economic team refuses to accept that the fire is kept alight by their policies.