ISLAMABAD, 18 June — Pakistanis are wondering: Where did $37 billion go? This debt is outstanding and the country owes it to its foreign lenders. It hinders new investment. This big question hangs over the nation following the release of the report of the Debt Reduction and Management Committee (DRMC), headed by economist Dr. Parvez Hasan, a former chief economist of the World Bank.
Part of the debt was used on development projects, no doubt. But, a large, though yet unquantified, amount was lost to commissions, kickbacks, wasteful spending, mismanagement and pure consumption. Out of $37 billion, it is likely that about a third or more may have been spent on development projects. But, others ask how much was the wastage? The foreign debt rose from $10 billion in 1980 to $40 billion in 2000. The domestic or public debt escalated from Rs. 155 billion to Rs. 3.5 trillion in the same period.
The fact that the DRMC called a conference to discuss its report, was a very healthy sign. It was particularly important because in this era of military rule the conference was attended by politicians, including Wasim Sajjad, the former chairman of the Senate; Elahi Bux Soomro, the former speaker of the National Assembly; Sartaj Aziz, former minister for Finance & Foreign Affairs; all from Pakistan Muslim League (PML-Nawaz Sharif); Gohar Ayub, former speaker of National Assembly and foreign minister and now secretary general PML (Q.A. Group); Sahebzada Mohsin Ali Khan, former finance minister of NWFP and now leader of Imran Khan’s Tehrik-e-Insaaf and Dr. Muhammad Zubair Khan, former commerce minister.
Foreign debt is “a national issue,” Finance Minister Shaukat Aziz said in his opening remarks. He said, “the question is how to tackle it? We must find areas of agreement. Should we have a Fiscal Responsibility Law so that no government can go beyond a set limit?”
However, there already is a constitutional provision, holding rulers back from going on a borrowing spree. Article 166 of the 1973 Constitution says: “The executive authority of the federation extends to borrowing upon the security of the Federal Consolidated Fund within such limits, if any, as may from time to time be fixed by Act of the Parliament, and to the giving of guarantees within such limits, if any, as may be so fixed.” Borrowing control mechanism is also provided in State Bank Act and Rules, but it remains unused.
However, the fact is that after 28 years, following the adoption of the much-suspended and much emaciated constitution, no limit was ever put on the federal government’s power to borrow. Or, did the rulers deliberately ignore it?
Aziz said: “The growth, as a result of foreign grants in the past was good, although it was flawed because its distribution was not equitable. The governments in the 1980s were borrowing for non-development expenditure. The governance was bad. Exports did not grow after 1995. The cost of borrowing was the highest in 1996-1999, making the debt burden the highest in that period. Now the DRMC estimates, Pakistan needs $25 billion during 2000 to 2004 for debt repayment and meet external obligations. Where to get this money? Its a tough agenda. Its tough, but do-able. Please advise us to find these answers.” Sartaj Aziz says the debt problem must be tackled, but there cannot be “ an equilibrium of the graveyard.” Foreign debt, in recent years, has grown from 200 percent of the country’s own annual forex earnings to 300 percent. The DRMC’s assumption is that the foreign donors will raise assistance dramatically. It will not happen.
The reality is that Pakistan is, and will have, to repay loans obtained on soft-terms, with fresh borrowing on hard terms. However, the domestic economy cannot generate enough forex resources because there is no investment due to present political uncertainty. The DRMC expects $17 to $20 billion to come from donors in 2001-04. Will it come? But, “If we get $4 billion or so the vulnerability of the balance of payments will reduce. We will not, thereafter, need much donor support.” Sakib Sherani, chief economist of ABN Ambro Bank, feels the public, though not the technical people, are “disappointed by the report. “The public wants a no-pain solution,” which the report does not provide. Doing away with the present political uncertainty, inconsistent policies and reduction in incentives to flight of capital, periodic adjustment of the exchange rate and reversing the premature opening of the capital account outflows, are needed to correct the situation. Wasim Sajjad says the DRMC’s report speaks of “painful choice”. “But, in this country “choices are for the rulers, and pain for the people. The rapid and repeated increase in the prices of oil, gas, electricity and utilities has made life hard for the people. And, yet more sacrifices are expected of them.”
Important decisions on debt and other policies can only be taken through a political consensus for which political activities should be allowed and the Parliament reactivated. People will bear pain if their opinion is included in the government decisions.” Shaukat Aziz said, keeping in view the peoples’ wishes, the present government is levying Agricultural Income Tax, undertaking better and more tax collection, life-styles of the rulers have changed and no Boeing-737s are now parked at the airports for some people. Only locally assembled cars are purchased for officials. The future will see more austerity.
Gohar Ayub says, “The people are not responsible for the country’s indebtedness, as they did not spend this money. Even the Cabinets are not often aware of debt, but the bureaucrats are. Financial institutions should be made responsible to democratic institutions. The donors may allow Pakistan to stay on “the life support system, because a nuclear power cannot be allowed to go under. Nothing more should be expected.”
Soomro said, when you ask people to make sacrifices, if you put pressure on half a percent — that is the elite class, 80 percent common people will follow.” The man in the street is suffering.
The rulers must stop lavish spending. If Queen Elizabeth II can fly from London to Australia by a commercial flight, why can’t the Pakistani rulers? Sahebzada Mohsin Ali criticized “the sacred cows of defense.” “If you adopt austerity, it does not mean, the amount thus saved should be spent on defense.” All expenses, civil and military should be slashed. Like many others, he also demanded: “people should be told where $37 billion were spent?”
Dr. Zubair said “the debt problem, created in 20 years, cannot be solved in 3 to 4 years. Next year the debt situation will be worse. There was absolutely no need to freeze the Foreign Currency Accounts (FCAs) of resident and expatriate Pakistanis in 1998 as it adversely affected the forex inflows. There should be a 10-year moratorium on all debt repayment, plus continuing the aid inflows. Where has the money gone? We ate it up. Lot of it went into pure consumption.”
Mueen Afzal, secretary-general, Ministry of Finance, said, “mistakes were made in the past” in foreign borrowing and spending. Now, forex and revenue generation has been stepped up to repay loans and manage expenditure. Fiscal deficit is down to 5.3 percent of GDP from 6 percent in the last 10 years, revenue collection this year will be plus Rs. 400 billion a raise of Rs. 100 billion in two years, while exports will cross $9 billion.
Dr. Parvez Hassan, chairman DRMC said, with a 3 percent population growth, the country still had positive growth. The people’s standard of living now is 150 percent higher than at Pakistan’s independence in 1947. Though all the borrowed money was not properly spent, but all of it also did not go down the drain. If it had been wasted, there will be no development projects on the ground. A debt moratorium choice is not available. In order to repay, and borrow less in future, tightening of belts, as DRMC has proposed, is not difficult. The economy’s future hopes are agriculture, and other productive sectors, plus vibrant expatriate Pakistanis. With a 5 percent growth in future, good governance, improved law and order and implementation of the economic and structural reform agenda, Pakistan may be able to establish its international credibility in three to four years. All this lament leads to one conclusion: strict control over external and domestic borrowing.
