Deep in debt

Rulers have failed to understand that economic weakness makes nuclear capability a liability and not strength

By Huzaima Bukhari and Dr. Ikramul Haq

Pakistan is a classical example of debt enslavement in modern history -- a nuclear state influenced by foreign powers through the mechanism of economic subjugation. Our total external debt is to reach nearly $75 billion in 2015 from $50.76 billion early this year -- 45 percent increase in such a short span. International Monetary Fund (IMF) has released its estimates; Pakistan's debt will increase by 13 percent or $ 6.4 billion to $ 57.1 billion by the end of the current fiscal year and is estimated to increase by $ 7 billion, or 12.3 percent, to $ 64 billion by the end of the next fiscal year. These estimates suggest that the external debt will increase by another $2 billion in 2012 and cross $74 billion mark in 2015.

The public and publicly guaranteed debts, including IMF loans, are estimated to increase by 45 percent from $47.26 billion on June 30, 2009, to more than $68.1 billion on June 30, 2016. The amount will increase to $53.3 billion during the current fiscal year and $59.9 billion by end of next year. The total medium and long-term debt which stood at about $41.5 billion at the end of June last year, will increase to $48.2 billion next year and reach $67.6 billion in 2015 -- an increase of about 40 percent. The Asian Development Bank (ADB) will have the single largest share in the external debt, which will increase from bare $9 billion to about $15.8 billion in 2015, by more than 75 percent in five years. The World Bank (WB) debt will increase by 29 percent from $12 billion to $15.5 billion by 2015. Bilateral debt is likely to increase by 96 percent from the current $16 billion to $31.28 billion in 2015.

Pakistan, caught in a deadly debt trap -- burgeoning external loans of $54 billion and domestic debt of nearly Rs. 4 trillion -- is begging for more and more money, not to invest for future betterment but to meet its day to day needs. Because of this vicious circle, where you have to borrow to meet debt servicing commitments, there remains little hope to come out of debt enslavement in the near future to stop looking towards IMF, WB, Paris Club, London Club, ADB -- unless a well-thought out plan is devised and implemented for self-reliance. There are no signs yet for the civil-military bureaucracy and public office holders to stop squandering foreign funds, wasting public money and plundering national wealth. Imprudent economic policies of civil and military regimes have failed to overcome the rising inflation, ever-increasing fiscal deficit, the worsening balance of payments and, unfavourable trade imbalances.

All the governments in Pakistan ruthlessly abused foreign lending/aids/grants and never tried to live within means -- the way our civil-military bureaucrats spend national resources on their luxuries is unprecedented in the entire world. The present economic crisis is a logical outcome of the wrongdoings of the last many decades. During Musharraf's rule, Debt Reduction & Management Committee (DRMC) was constituted with tall claims to evolve a strategy to come out of the debt trap. Nobody knows what DRMC did in practical terms for which it was constituted -- though like many other bodies and institutions it compiled report about Pakistan's debt scenario explaining the technical differences between "debts" and "liabilities" and how these should be recorded in government books. Noted economist, Nadeem-ul-Haq in a recent message asked us to "examine USAID. Where is all the money going? Beltway bandits are taking it all and we continue begging..... sounds like Monty Python".

The debt trap is a multi-faceted phenomenon. It gives neo-colonial forces a modern tool to subjugate countries like Pakistan that try to defy their commands -- e.g., pursuing nuclear programme to overcome energy shortages and striving for economic, political, and social liberation. ADB, in one of its reports on Pakistan observed: "Pakistan entered the 21 Century with serious financial problems. Public debt exceeded 90 percent of its GDP, over 600 percent of its annual revenues, and debt-servicing accounted for over half of current revenues. In 2001, Pakistan was the only country in South Asia to be classified as a severely indebted country by the World Bank. Due to the inability to service external debt, there were two consecutive rounds of debt rescheduling by Paris Club members and one from the quasi-London Club between 1998 and 2001".

This was a slap in the face of those who claimed to have achieved wonders during their democratic (sic) rules. In fact, they messed up the economy in the same way as the military dictators did. Our rulers have failed to understand that economic feebleness makes nuclear capability a liability and not strength. They have pushed the country to the brink of economic collapse. Now on the dictates of IMF they are levying more and more regressive taxes and making the lives of common people miserable. The rich traders and industrialists are not directly hit by such harsh tax measures as they can easily pass on their burden to consumers. They are, however, certainly feeling insecure as chaotic conditions have a visible dampening effect on business environment.

This state of affairs is the direct outcome of state's policies that allow a free hand to the forces of loot, corruption, and terrorism. No other state in the world has undergone such a horrible experience. Clearly, Pakistani rulers have destroyed the state through corruption and incompetence. Unfortunately, foreign-trained Pakistani economists are merely engaged in defending and serving their masters, instead of advising the concerned quarters to enforce financial discipline and better financial management.

On the one hand, we are destroying the available capital, industry, and human resource and on the other for economic growth (sic) we heavily and persistently rely on external loans and credits without realising that external loans on soft terms are now becoming scarcer. The IMF, since our approaching it again in November 2008 for 23-month stand-by loan agreement, is imposing tougher and even contradictory conditionalities. It is an undisputed fact that IMF conditionalities have aggravated the inequalities of income and wealth in Pakistan and resulted in unemployment.

The IMF conditionalities have caused more harm to us than doing anything really good, hence it is very painful to note that every government in Pakistan continues to take loans by accepting and complying with these harsh conditionalities. The rationale of seeking more and more debt for curing the evils caused by the mounting debt itself is simply beyond comprehension. It is high time that we stop taking fresh loans. We must mobilise all our resources -- our tax revenue potential alone is not less than Rs. 4 trillion. If we manage to generate these resources, we will be able to meet not only our current and development expenditure but also pay off all the external loans within a span of three to five years.

The writers, tax lawyers, are members of visiting faculty of Lahore University of Management Sciences (LUMS)