Presentation
On
Impact of Foreign Debt on Pakistans
Economy
by www.suit.edu.pk
Prof.Dr. Habib-Ur-Rahman
Key words: Pakistan Economy, Resource Constraints, Deficit financing, Foreign debt, Impact
on Pakistans Economy.
Methodology:
Exports
Imports
Trade Deficit
Workers
Remittances #
Current Account
Deficit #
1980---85
8.96%
18.72%
9.74%
8.30%
3.82%
1985---90
11.28%
17.10%
5.78%
5.94%
4.00%
1990---95
13.52%
17.80%
4.26%
3.20%
4.54%
1995---00
13.22%
16.86%
3.64%
2.02%
4.44%
2001---05
12.94%
15.74%
2.78%
3.50%
1.86%
2005---10
11.28%
21.12%
9.86%
3.92%
5.10%
During the period from 1980 to 1985 average trade deficit was Us $ 9.74 billions
which
declined to Us $ 5.78 billions for the period from 1985 to 1990 and then gradually fell to an
average of Us $ 2.78 billions during the five years i.e. 2001 to 2005.
However ,the period from 2005 to 2010 witnessed the highest average trade deficit of Us $
9.86 billions.
The status of current account also reveals that the economy has been under pressure during the
whole period of twenty years from 1980 to 2000. The current deficit was counted as 3.82 % of
the GDP for the period 1980 to 1985.It rose to 4.54 % for the years 1990 to 1995. It was only
during the year 2001-02, 2002-03 and 2003-04 that our current account showed a surplus.
Resultantly the average deficit during this period fell to 1.86 %of the GDP. Like trade deficit the
current account deficit during the five year period from 2005 to 2010 reached the highest peak
of an average of 5.10 % of the GDP. The continuous deficit in both the trading and current
accounts pointing to a critical situation where the only resort left is to look for the foreign
assistance.
This phenomena caused dual gap and necessitated seeking financial assistance from the
multilateral lenders including International Monetary Fund
Table No.2,3&4. below reveals the amount borrowed and amount incurred on debt servicing.
during the period from 1951 to 2010.
Table No 2.
(Million US Dollars)
Loans/Grants Disbursement
Year
I. Pre Plan
1951 55
Sub-total (I)
II. 1st Plan
1955 56
1956 57
1957 58
1958 59
1959 60
Sub-total (II)
III. 2nd Plan
1960 61
1961 62
1962 63
1963 64
1964 65
Sub-total (III)
IV. 3rd Plan
1965 66
1966 67
1967 68
1968 69
1969 70
Sub-total (IV)
Loans
Grants
Total
Debt Serving
Principal Paid
Back
Interest
Paid
Total
--
1.0
1.0
1.0
1.0
1.0
3.0
3.0
3.0
5.0
15.0
2.0
5.0
5.0
9.0
11.0
32.0
192
650
842
1.0
2.0
2.0
6.0
6.0
17.0
111
138
258
315
410
1232
231
166
243
226
296
1162
342
304
501
541
706
2394
11.0
20.0
34.0
44.0
37.0
146.0
6.0
11.0
13.0
18.0
25.0
73.0
17.0
31.0
47.0
62.0
62.0
219.0
392
432
506
493
501
2324
141
191
223
101
63
719
533
623
729
594
564
3043
41.0
52.0
62.0
93.0
105.0
353.0
33.0
44.0
46.0
65.0
71.0
259.0
74.0
96.0
108.0
158.0
176.0
612.0
Table 2 (Continued)
V. Non Plan
1970 71
1971 72
1972 73
1973 74
1974 75
1975 76
1976 77
1977 78
Sub-total (V)
566
359
311
444
914
925
816
748
5083
46
50
44
54
62
126
144
108
634
612
409
355
498
976
1051
960
856
5717
101.0
71.0
107.0
118.0
144.0
141.0
175.0
165.0
1022.0
81.0
51.0
86.0
79.0
115.0
141.0
179.0
209.0
941.0
182.0
122.0
193.0
197.0
259.0
282.0
354.0
374.0
1963.0
Debt Serving
Principal Paid
Back
Interest
Paid
Total
Loans
Grants
Total
826
1218
719
681
974
4418
122
252
253
421
327
1375
948
1470
972
1102
1301
5793
233.0
350.0
360.0
288.0
390.0
1621.0
261.0
306.0
314.0
344.0
410.0
1635.0
494.0
656.0
674.0
632.0
800.0
3256.0
880
876
1073
1017
1312
5158
296
381
455
381
512
2025
1176
1257
1528
1398
1824
7183
453.0
513.0
603.0
723.0
691.0
2983.0
439.0
446.0
457.0
500.0
537.0
2379.0
892.0
959.0
1060.0
1223.0
1228.0
5362.0
2035
1807
1541
2012
2145
9540
584
535
615
459
348
2541
2619
2342
2156
2471
2493
12081
685.0
741.0
782.0
921.0
999.0
4128.0
552.0
590.0
613.0
663.0
707.0
3125.0
1237.0
1331.0
1395.0
1584.0
1706.0
7253.0
2250
2296
2364
1996
2616
299
304
201
237
185
2549
2600
2565
2233
2801
1078.0
1294.0
1346.0
1520.0
1623.0
732.0
837.0
891.0
825.0
820.0
11522
1226
12748
6861.0
4105.0
1810.0
2131.0
2237.0
2345.0
2443.0
10966.0
X. Non Plan
1998 99
1999 00
2000 01
2001 02
2002 03
2003 04
2004 05
2005 06
2278
1303
1463
1415
1201
975
1892
2069
154
125
136
903
352
295
383
794
2432
1428
1599
2318
1553
1270
2275
2863
1065.0
892.0
975.0
753.0
793.0
2513.0
1078.0
1446.0
587.0
758.0
753.0
686.0
668.0
720.0
690.0
717.0
1652.0
1650.0
1728.0
1439.0
1461.0
3233.0
1768.0
2163.0
Sub-total (X)
Grand Total
12596
52065
3142
13474
15738
65539
9515.0
26646.0
5579.0
18112.0
15094.0
44758.0
th
VI. 5 Plan
1978 79
1979 80
1980 81
1981 82
1982 83
Sub-total (VI)
VII. 6th Plan
1983 84
1984 85
1985 86
1986 87
1987 88
Sub-total (VII)
VIII. 7th Plan
1988 89
1989 90
1990 91
1991 92
1992 93
Sub-total (VIII)
IX. 8th Plan
1993 94
1994 95
1995 96
1996 97
1997 98
Sub-total (IX)
Table.4
Year
Loans Relief Total Principal
2007
2.884 0.397
3.281 1.785
2008
2.210 0.869
3.079 1.935
2009
3.640 0.366
4.006 3.588
2010
1.691 0.139
1.830 4.632
SubTotal
10.425 1.771 12.196 11.940
Grand Total 62.490 15.245 77.735 38.586
Source Economic Affairs Division
Interest
1.091
1.248
1.159
1.009
4.507
22.619
Total
2.876
3.183
4.747
5.641
16.447
61.205
It is evident that total payment of interest as well as that of principal amounts to Us $ 44.758
billions till 2005-2006 which has been putting pressure on the over all financial strength of the
economy because major portion of loans received each time was incurred on debt servicing and
at times the loans were taken merely because the economy could not generate the resources to
repay the agreed amount during the period. Interestingly out of this, payment of US $18.112
billions was made by way of interest and principal was redeemed only to the tune of $ 26.646
billions.The interest paid is is 40.46% of the total amount repaid. Surprisingly during the 5th
plan period a sum of Us $ 3.256 billions has been incurred as debt servicing against a loan
amount of US$ 4.418.00 billions which is 73.69% of the original loan. The 6th plan period ate up
the entire amount of loan disbursed to Pakistan because the debt servicing of US $ 5.362 billions
was more than the loan amount of Us $ 5.158. Also agonizing are the figures of disbursement of
loan during the 8th plan period where debt and interest payment cost 95% of the loan amount
disbursed during the period from 1993-1994 to 1997-1998. However, from 2007 onward the
repayment of principal has increased and during this period the debt servicing cost US $ 16.447
against total disbursement of US $12.196. The interest amount of Us $ 4.507 alone counts 27.4
% of the total debt servicing. As such due to heavy interest payments a nominal amount of
principal is redeemed. Resultantly the outstanding amount of foreign debt and liabilities rose
from Us $38 billion in 2001 to more than Us $ 58 billion in 2010. This phenomena has been
aggravating the repayment situation which if not checked and corrected will ultimately affect
the national integrity.
On account of repayment difficulties rescheduling and restructuring became necessary to
maintain the integrity in the international community. The first rescheduling necessitated in 1972
due to debacle of East Pakistan which involved an amount of US$ 234 million. An other amount
of US $260 millions was rescheduled in 1981(i.) Paris Club allowed a cash flow relief of US
$3.3 billions for the loans which were falling due during the period from January ,1999 and
December 2000, under Houston Terms. The Club also approved restructuring of US $1.8
billions which were due for payment within the period from December 2000 to September,2001.
Since the outstanding amount of foreign debts and liabilities continued increasing at much fast
rate the Govt. of Pakistan had to seek assistance in rescheduling/restructuring and now the last
resort of roll over.
Borrowing for a developing economy is ,no doubt, a common characteristic but it must
eventually result in minimizing the need for borrowing and the economy must steadily move
towards the self sustaining stage. In case of Pakistan, the economy was a role model for the
developing nations during the 60s decade but due to political instability and also loss of public
7
confidence the subsequent years could not witness the remarkable reduction in the quantum of
foreign loans. There was one of the solid reasons that heavy interest rate added to the difficulties
in repaying the loans. No. of lenders increased due to increased demand for further loans which
has naturally been putting further strain on the growing economy. In-ability to increase export to
the level of bringing equilibrium in the export and import or at least bringing down the import to
the minimum causing severe trade as well as balance of payment problems and consequently
placed the economy at the mercy of the lending agencies and donors.
The second major reason is the minimum ratio of net transfer to Pakistan. Besides, tied loans
constraints, very nominal amount used to be left for utilizing in the process of economic
development.
Table No.5.
Year
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
@ July-March
(Amount in million $)
Gross
Disbursements
2045
2366
2436
2530
2571
2555
2231
2800
2440
1426
1599
2316
1553
1270
2275
2863
3232
2503
Debt Servicing
1316
1513
1648
1746
2042
2136
2265
2353
1638
1778
1546
1190
1327
2978
1461
1572
1748
1413
Net Transfers
(N.T)
729
853
788
784
529
419
-34
447
802
-352
53
1126
226
-1708
814
1291
1484
1090
NT as % of Gross
Disbursements
36
36
32
31
21
16
-2
16
33
-25
3
49
15
-134
36
45
46
44
The figures in the above table depict the miserable position of the State on account of loan
amount which is taken back by the lending agencies. The volume of loans left at the disposal of
the Govt. of Pakistan is no more than salt in bread. Looking at the above table it is revealed that
during the period from 1990 to 1994 the residual amount or for that matter the NET
TRANSFERS was gradually declining from 36% to 21%. In 1995-1996 it fell to 16% whereas
in the year 1996-1997 the amount of loan disbursed to Pakistan was not only taken back by way
of debt servicing but 2% of the existing resources had to be used for fulfilling the commitment.
During the year 1999-2000 State had to pay 25% more than the amount disbursed and much
excruciatingly was the year the year 2003-2004 when Pakistan reimbursed 134% more than it
had received by way of loan from the foreign countries.
It is a considered opinion that projects have a longer gestation period. It takes years to come into
operation and generate revenue. Under such circumstances repayments disturb the project
implementation and completion. Again the non Project Aid is normally consumed and the
instant repayment creates financial crisis in the developing countries. This has always put severe
strain on financial health of the economy of Pakistan. Pakistan has been suffering from this
8
malady for which reasons she had to seek rescheduling and restructuring of loans fallen due for
repayment. One of the reasons was larger amount lent as non project aid.
Table No.6.below tells the quantum of aid which has been advanced for non project purposes.
Table No.6
(amount in millions $)
% Share
71.7 %
28.1 %
32.5 %
42.0 %
56.2 %
63.8 %
23.8 %
28.9 %
Non-Project Aid
Amount
% Share
626
28.3 %
633
71.9 %
2,311
67.5 %
1,188
58.0 %
960
43.8 %
1,117
36.2 %
3,261
76.2 %
1,985
71.1 %
471
18.8 %
2,032
81.2 %
2,503
2008-09
1,272
27.1%
3,415
72.8%
4,688
2009-10
840
39.3%
1,295
60.7%
2,135
Year
1990s
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Project Aid
Amount
1,589
247
1,113
860
1,233
1,965
1,021
808
Total
2,215
880
3,424
2,048
2,193
3,084
4,282
2,793
Table No.7.
Pakistan's External Debt and Liabilities
30/09/091
31/12/091
31/03/101
30/06/101
(Million
US$)
30/09/20101
ITEM
1) Public debt (a+b+c)
a) Government Debt
i). Medium and long term(>1 year)
Paris club
Multilateral
Other bilateral
Euro/Sukuk global bonds
Military debt
Commercial loans/credits
51,625
43,961
43,372
14,663
24,040
1,454
2,150
199
166
52,048
43,332
43,010
14,330
23,711
1,717
2,150
199
-
50,638
42,210
41,610
14,017
23,161
1,820
1,550
157
-
52,107
42,908
42,115
13,958
23,694
1,782
1,550
167
-
54,794
44,786
43,906
14,843
24,694
1,780
1,550
167
-
500
200
589
589
6,442
745
5,698
1,222
1,200
22
136
94
42
892
3
200
500
200
322
322
7,494
1,117
6,377
1,222
1,200
22
166
81
35
50
865
4
200
500
200
600
600
7,206
1,083
6,123
1,222
1,200
22
169
59
35
75
840
64
200
500
200
793
793
8,077
1,055
7,022
1,122
1,100
22
72
200
500
100
880
880
8,908
1,572
7,336
1,100
1,100
-
159
56
28
75
151
226
119
106
2,200
137
55,216
11,761
196
126
70
2,263
137
55,675
12,055
262
120
142
2,189
137
54,235
11,188
812
193
118
75
2,231
124
55,626
13,112
787
246
112
134
10
48
28
75
2,310
124
58,412
13,386
commencement
1.Warsak Dam
1. Mangla dam Hydal power project
3.Tarbela dam
4.Chashma Power Plant
5Guddu Barrage
5.Pakistan Steel Mills
8..Motar Way M2
11
1955
1961
1968
1970
1957
1973
1992
Completion
1960
1967
1976
1993
1962
1985
1997
Suggestions
We have abundant natural resources which can be exploited for the betterment of the
country provided substantial financial arrangements are ensured .
In order to minimize the disguised unemployment, industrialization is the only option.
Emphasis should on the development of export oriented and import substitute industries
so that our balance of trade difficulties can be minimized.
To promote the process of industrialization the availability of input and energy is pre
requisite. Also development of agriculture is the need of the day because of its being the
major source of input of agro based industries.
It is therefore suggested that.
a).
b).
c).
d).
The existing lenders, in view of the ever increasing quantum of foreign debt due to
application of interest, may wave off the entire amount of interest so far applied.
The principal amount may be rescheduled payable in installment over a period of ten to
twenty years.
The Regional Co-operation for Development be revived /rejuvenated, its scope be
expanded and the oil rich Muslim States may be prevailed upon to join this organization
to pool funds ,plan development activities and execute such plans from the R.C.D forum
as joint ventures.
Direct Foreign Investment, instead of lending ,be encouraged from the friendly countries
both as joint venture as well as on the basis of Build Operate and Transfer However,
political infringement must be guarded against.
References
1.
Bashar, A. (2002). Foreign Debt "Magical Performance". Finance and Markets
Retrieved 22 October, November 22, from www.pakistaneconomist.com/issue20-21
2.
Pakistan, G. o. (2009). Statistical Annual Report (Demographic Report). Islamabad:
Federal Statistic Bureau Pakistan.
3
GOP. (2009). Pakistan Statistical Year Book, Annual Report Available from
www.gov.pk
4
Pakistan, S. B. O. (2001-2010). Annual Report State Bank of Pakistan, Pakistan External
Debt Available from www.sbp.gov.pk
5.
6
Askari, J. (2001-2010). Economic Survey of Pakistan.
Retrieved from www.gov.pk.
12
Key words: Pakistan Economy, Resource Constraints, Deficit financing, Foreign debt, Impact
on Pakistans Economy.
Methodology:
13
Exports
Imports
Trade Deficit
Workers
Remittances #
Current Account
Deficit #
1980---85
8.96%
18.72%
9.74%
8.30%
3.82%
1985---90
11.28%
17.10%
5.78%
5.94%
4.00%
1990---95
13.52%
17.80%
4.26%
3.20%
4.54%
1995---00
13.22%
16.86%
3.64%
2.02%
4.44%
2001---05
12.94%
15.74%
2.78%
3.50%
1.86%
2005---10
11.28%
21.12%
9.86%
3.92%
5.10%
During the period from 1980 to 1985 average trade deficit was Us $ 9.74 billions
which
declined to Us $ 5.78 billions for the period from 1985 to 1990 and then gradually fell to an
average of Us $ 2.78 billions during the five years i.e. 2001 to 2005.
However ,the period from 2005 to 2010 witnessed the highest average trade deficit of Us $
9.86 billions.
The status of current account also reveals that the economy has been under pressure during the
whole period of twenty years from 1980 to 2000. The current deficit was counted as 3.82 % of
the GDP for the period 1980 to 1985.It rose to 4.54 % for the years 1990 to 1995. It was only
during the year 2001-02, 2002-03 and 2003-04 that our current account showed a surplus.
Resultantly the average deficit during this period fell to 1.86 %of the GDP. Like trade deficit the
current account deficit during the five year period from 2005 to 2010 reached the highest peak
of an average of 5.10 % of the GDP. The continuous deficit in both the trading and current
accounts pointing to a critical situation where the only resort left is to look for the foreign
assistance.
This phenomena caused dual gap and necessitated seeking financial assistance from the
multilateral lenders including International Monetary Fund
Table No.2,3&4. below reveals the amount borrowed and amount incurred on debt servicing.
during the period from 1951 to 2010.
Table No 2.
(Million US Dollars)
Loans/Grants Disbursement
Year
I. Pre Plan
1951 55
Sub-total (I)
II. 1st Plan
1955 56
1956 57
1957 58
1958 59
1959 60
Sub-total (II)
III. 2nd Plan
1960 61
1961 62
1962 63
1963 64
1964 65
Sub-total (III)
IV. 3rd Plan
1965 66
1966 67
1967 68
1968 69
1969 70
Sub-total (IV)
Loans
Grants
Total
Debt Serving
Principal Paid
Back
Interest
Paid
Total
--
1.0
1.0
1.0
1.0
1.0
3.0
3.0
3.0
5.0
15.0
2.0
5.0
5.0
9.0
11.0
32.0
192
650
842
1.0
2.0
2.0
6.0
6.0
17.0
111
138
258
315
410
1232
231
166
243
226
296
1162
342
304
501
541
706
2394
11.0
20.0
34.0
44.0
37.0
146.0
6.0
11.0
13.0
18.0
25.0
73.0
17.0
31.0
47.0
62.0
62.0
219.0
392
432
506
493
501
2324
141
191
223
101
63
719
533
623
729
594
564
3043
41.0
52.0
62.0
93.0
105.0
353.0
33.0
44.0
46.0
65.0
71.0
259.0
74.0
96.0
108.0
158.0
176.0
612.0
15
Table 2 (Continued)
V. Non Plan
1970 71
1971 72
1972 73
1973 74
1974 75
1975 76
1976 77
1977 78
Sub-total (V)
566
359
311
444
914
925
816
748
5083
46
50
44
54
62
126
144
108
634
612
409
355
498
976
1051
960
856
5717
101.0
71.0
107.0
118.0
144.0
141.0
175.0
165.0
1022.0
81.0
51.0
86.0
79.0
115.0
141.0
179.0
209.0
941.0
182.0
122.0
193.0
197.0
259.0
282.0
354.0
374.0
1963.0
Debt Serving
Principal Paid
Back
Interest
Paid
Total
Loans
Grants
Total
826
1218
719
681
974
4418
122
252
253
421
327
1375
948
1470
972
1102
1301
5793
233.0
350.0
360.0
288.0
390.0
1621.0
261.0
306.0
314.0
344.0
410.0
1635.0
494.0
656.0
674.0
632.0
800.0
3256.0
880
876
1073
1017
1312
5158
296
381
455
381
512
2025
1176
1257
1528
1398
1824
7183
453.0
513.0
603.0
723.0
691.0
2983.0
439.0
446.0
457.0
500.0
537.0
2379.0
892.0
959.0
1060.0
1223.0
1228.0
5362.0
2035
1807
1541
2012
2145
9540
584
535
615
459
348
2541
2619
2342
2156
2471
2493
12081
685.0
741.0
782.0
921.0
999.0
4128.0
552.0
590.0
613.0
663.0
707.0
3125.0
1237.0
1331.0
1395.0
1584.0
1706.0
7253.0
2250
2296
2364
1996
2616
299
304
201
237
185
2549
2600
2565
2233
2801
1078.0
1294.0
1346.0
1520.0
1623.0
732.0
837.0
891.0
825.0
820.0
11522
1226
12748
6861.0
4105.0
1810.0
2131.0
2237.0
2345.0
2443.0
10966.0
X. Non Plan
1998 99
1999 00
2000 01
2001 02
2002 03
2003 04
2004 05
2005 06
2278
1303
1463
1415
1201
975
1892
2069
154
125
136
903
352
295
383
794
2432
1428
1599
2318
1553
1270
2275
2863
1065.0
892.0
975.0
753.0
793.0
2513.0
1078.0
1446.0
587.0
758.0
753.0
686.0
668.0
720.0
690.0
717.0
1652.0
1650.0
1728.0
1439.0
1461.0
3233.0
1768.0
2163.0
Sub-total (X)
Grand Total
12596
52065
3142
13474
15738
65539
9515.0
26646.0
5579.0
18112.0
15094.0
44758.0
th
VI. 5 Plan
1978 79
1979 80
1980 81
1981 82
1982 83
Sub-total (VI)
VII. 6th Plan
1983 84
1984 85
1985 86
1986 87
1987 88
Sub-total (VII)
VIII. 7th Plan
1988 89
1989 90
1990 91
1991 92
1992 93
Sub-total (VIII)
IX. 8th Plan
1993 94
1994 95
1995 96
1996 97
1997 98
Sub-total (IX)
Table.4
Year
Loans Relief Total Principal
2007
2.884 0.397
3.281 1.785
2008
2.210 0.869
3.079 1.935
2009
3.640 0.366
4.006 3.588
2010
1.691 0.139
1.830 4.632
SubTotal
10.425 1.771 12.196 11.940
Grand Total 62.490 15.245 77.735 38.586
Source Economic Affairs Division
Interest
1.091
1.248
1.159
1.009
4.507
22.619
Total
2.876
3.183
4.747
5.641
16.447
61.205
It is evident that total payment of interest as well as that of principal amounts to Us $ 44.758
billions till 2005-2006 which has been putting pressure on the over all financial strength of the
economy because major portion of loans received each time was incurred on debt servicing and
at times the loans were taken merely because the economy could not generate the resources to
repay the agreed amount during the period. Interestingly out of this, payment of US $18.112
billions was made by way of interest and principal was redeemed only to the tune of $ 26.646
billions.The interest paid is is 40.46% of the total amount repaid. Surprisingly during the 5th
plan period a sum of Us $ 3.256 billions has been incurred as debt servicing against a loan
amount of US$ 4.418.00 billions which is 73.69% of the original loan. The 6th plan period ate up
the entire amount of loan disbursed to Pakistan because the debt servicing of US $ 5.362 billions
was more than the loan amount of Us $ 5.158. Also agonizing are the figures of disbursement of
loan during the 8th plan period where debt and interest payment cost 95% of the loan amount
disbursed during the period from 1993-1994 to 1997-1998. However, from 2007 onward the
repayment of principal has increased and during this period the debt servicing cost US $ 16.447
against total disbursement of US $12.196. The interest amount of Us $ 4.507 alone counts 27.4
% of the total debt servicing. As such due to heavy interest payments a nominal amount of
principal is redeemed. Resultantly the outstanding amount of foreign debt and liabilities rose
from Us $38 billion in 2001 to more than Us $ 58 billion in 2010. This phenomena has been
aggravating the repayment situation which if not checked and corrected will ultimately affect
the national integrity.
On account of repayment difficulties rescheduling and restructuring became necessary to
maintain the integrity in the international community. The first rescheduling necessitated in 1972
due to debacle of East Pakistan which involved an amount of US$ 234 million. An other amount
of US $260 millions was rescheduled in 1981(i.) Paris Club allowed a cash flow relief of US
$3.3 billions for the loans which were falling due during the period from January ,1999 and
December 2000, under Houston Terms. The Club also approved restructuring of US $1.8
billions which were due for payment within the period from December 2000 to September,2001.
Since the outstanding amount of foreign debts and liabilities continued increasing at much fast
rate the Govt. of Pakistan had to seek assistance in rescheduling/restructuring and now the last
resort of roll over.
Borrowing for a developing economy is ,no doubt, a common characteristic but it must
eventually result in minimizing the need for borrowing and the economy must steadily move
towards the self sustaining stage. In case of Pakistan, the economy was a role model for the
developing nations during the 60s decade but due to political instability and also loss of public
17
confidence the subsequent years could not witness the remarkable reduction in the quantum of
foreign loans. There was one of the solid reasons that heavy interest rate added to the difficulties
in repaying the loans. No. of lenders increased due to increased demand for further loans which
has naturally been putting further strain on the growing economy. In-ability to increase export to
the level of bringing equilibrium in the export and import or at least bringing down the import to
the minimum causing severe trade as well as balance of payment problems and consequently
placed the economy at the mercy of the lending agencies and donors.
The second major reason is the minimum ratio of net transfer to Pakistan. Besides, tied loans
constraints, very nominal amount used to be left for utilizing in the process of economic
development.
Table No.5.
Year
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
@ July-March
(Amount in million $)
Gross
Disbursements
2045
2366
2436
2530
2571
2555
2231
2800
2440
1426
1599
2316
1553
1270
2275
2863
3232
2503
Debt Servicing
1316
1513
1648
1746
2042
2136
2265
2353
1638
1778
1546
1190
1327
2978
1461
1572
1748
1413
Net Transfers
(N.T)
729
853
788
784
529
419
-34
447
802
-352
53
1126
226
-1708
814
1291
1484
1090
NT as % of Gross
Disbursements
36
36
32
31
21
16
-2
16
33
-25
3
49
15
-134
36
45
46
44
The figures in the above table depict the miserable position of the State on account of loan
amount which is taken back by the lending agencies. The volume of loans left at the disposal of
the Govt. of Pakistan is no more than salt in bread. Looking at the above table it is revealed that
during the period from 1990 to 1994 the residual amount or for that matter the NET
TRANSFERS was gradually declining from 36% to 21%. In 1995-1996 it fell to 16% whereas
in the year 1996-1997 the amount of loan disbursed to Pakistan was not only taken back by way
of debt servicing but 2% of the existing resources had to be used for fulfilling the commitment.
During the year 1999-2000 State had to pay 25% more than the amount disbursed and much
excruciatingly was the year the year 2003-2004 when Pakistan reimbursed 134% more than it
had received by way of loan from the foreign countries.
It is a considered opinion that projects have a longer gestation period. It takes years to come into
operation and generate revenue. Under such circumstances repayments disturb the project
implementation and completion. Again the non Project Aid is normally consumed and the
instant repayment creates financial crisis in the developing countries. This has always put severe
strain on financial health of the economy of Pakistan. Pakistan has been suffering from this
18
malady for which reasons she had to seek rescheduling and restructuring of loans fallen due for
repayment. One of the reasons was larger amount lent as non project aid.
Table No.6.below tells the quantum of aid which has been advanced for non project purposes.
Table No.6
(amount in millions $)
% Share
71.7 %
28.1 %
32.5 %
42.0 %
56.2 %
63.8 %
23.8 %
28.9 %
Non-Project Aid
Amount
% Share
626
28.3 %
633
71.9 %
2,311
67.5 %
1,188
58.0 %
960
43.8 %
1,117
36.2 %
3,261
76.2 %
1,985
71.1 %
471
18.8 %
2,032
81.2 %
2,503
2008-09
1,272
27.1%
3,415
72.8%
4,688
2009-10
840
39.3%
1,295
60.7%
2,135
Year
1990s
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Project Aid
Amount
1,589
247
1,113
860
1,233
1,965
1,021
808
Total
2,215
880
3,424
2,048
2,193
3,084
4,282
2,793
19
Table No.7.
Pakistan's External Debt and Liabilities
30/09/091
31/12/091
31/03/101
30/06/101
(Million
US$)
30/09/20101
ITEM
1) Public debt (a+b+c)
a) Government Debt
i). Medium and long term(>1 year)
Paris club
Multilateral
Other bilateral
Euro/Sukuk global bonds
Military debt
Commercial loans/credits
51,625
43,961
43,372
14,663
24,040
1,454
2,150
199
166
52,048
43,332
43,010
14,330
23,711
1,717
2,150
199
-
50,638
42,210
41,610
14,017
23,161
1,820
1,550
157
-
52,107
42,908
42,115
13,958
23,694
1,782
1,550
167
-
54,794
44,786
43,906
14,843
24,694
1,780
1,550
167
-
500
200
589
589
6,442
745
5,698
1,222
1,200
22
136
94
42
892
3
200
500
200
322
322
7,494
1,117
6,377
1,222
1,200
22
166
81
35
50
865
4
200
500
200
600
600
7,206
1,083
6,123
1,222
1,200
22
169
59
35
75
840
64
200
500
200
793
793
8,077
1,055
7,022
1,122
1,100
22
72
200
500
100
880
880
8,908
1,572
7,336
1,100
1,100
-
159
56
28
75
151
226
119
106
2,200
137
55,216
11,761
196
126
70
2,263
137
55,675
12,055
262
120
142
2,189
137
54,235
11,188
812
193
118
75
2,231
124
55,626
13,112
787
246
112
134
20
48
28
75
2,310
124
58,412
13,386
commencement
1.Warsak Dam
1. Mangla dam Hydal power project
3.Tarbela dam
4.Chashma Power Plant
5Guddu Barrage
5.Pakistan Steel Mills
8..Motar Way M2
21
1955
1961
1968
1970
1957
1973
1992
Completion
1960
1967
1976
1993
1962
1985
1997
Suggestions
We have abundant natural resources which can be exploited for the betterment of the
country provided substantial financial arrangements are ensured .
In order to minimize the disguised unemployment, industrialization is the only option.
Emphasis should on the development of export oriented and import substitute industries
so that our balance of trade difficulties can be minimized.
To promote the process of industrialization the availability of input and energy is pre
requisite. Also development of agriculture is the need of the day because of its being the
major source of input of agro based industries.
It is therefore suggested that.
a).
b).
c).
d).
The existing lenders, in view of the ever increasing quantum of foreign debt due to
application of interest, may wave off the entire amount of interest so far applied.
The principal amount may be rescheduled payable in installment over a period of ten to
twenty years.
The Regional Co-operation for Development be revived /rejuvenated, its scope be
expanded and the oil rich Muslim States may be prevailed upon to join this organization
to pool funds ,plan development activities and execute such plans from the R.C.D forum
as joint ventures.
Direct Foreign Investment, instead of lending ,be encouraged from the friendly countries
both as joint venture as well as on the basis of Build Operate and Transfer However,
political infringement must be guarded against.
References
1.
Bashar, A. (2002). Foreign Debt "Magical Performance". Finance and Markets
Retrieved 22 October, November 22, from www.pakistaneconomist.com/issue20-21
2.
Pakistan, G. o. (2009). Statistical Annual Report (Demographic Report). Islamabad:
Federal Statistic Bureau Pakistan.
3
GOP. (2009). Pakistan Statistical Year Book, Annual Report Available from
www.gov.pk
4
Pakistan, S. B. O. (2001-2010). Annual Report State Bank of Pakistan, Pakistan External
Debt Available from www.sbp.gov.pk
5.
6
Askari, J. (2001-2010). Economic Survey of Pakistan.
Retrieved from www.gov.pk.
22
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