November 12, 2001	Monday	Shaba’an 25, 1422

THE TERMS “aid” and “trade” have become the most common words in the lexicon of the present-day development economists. For the advancement of any country both these factors play a crucial role.

The top place in the priority list of the developed countries is taken by the term “trade” while in the case of developing countries the same place is taken by the term “aid”.

‘Trade’ signifies the concept of “exchange” i.e. one good/commodity is exchanged for another and it emphasizes on exchange of value. While aid connotes help, it may be on economic, political or humanitarian grounds. Whereas foreign aid has its own definition, i.e. “all kinds of resource inflows that are publicly granted and are made either from government to government or from a financial institution to a government, only economic aid included and military is excluded”.

It was after the World War II in 1939-1945 that the west European countries were given economic aid by the USA, for the first time. In the same way, the USSR also came to the rescue of the East European nations. Initially, grants constituted the major portion of those aids. The situation,however,changed at the end of the 60’s.In the 70’s ,the world was going through many economic, social and political upheavals such as Arab-Israel war, hike in oil prices, prolonged economic recession and collapse of fixed exchange rate system.

It was then, that developed countries started to take the issue of aid in different context. Aid later became more as a source of political exploitation than as an instrument for human welfare, economic development and social advancement.Large aid to Pakistan during the 80’s, the Alliance for progress in South America, solid financial and strategic support to Taiwan, recent tilt of America and its financial blessings on India in context of its geo-strategic position are the few examples of the many real world cases where aid has been increased by sheer political motivations.

Against this backdrop, Pakistan may again become the USA’s prime ally in its fight against terrorism. This sort of commitment by Pakistan has not only helped it to get rid of Symington, Pressler and Brownback amendments but along with them, it will start getting large inflows of external financial resources in grants, concessional bilateral and multilateral loans, commercial credit,higher ratings from multilateral organizations, technical assistance, food aid and many others.

The reasons why the developing countries accept or always are in search of borrowers are many .First,when they achieved independence they had collapsed and crumbled economic, political and social structure. Things got even more serious when these countries weakened themselves by fighting wars on border issues and in that way wasted their resources .Along with Pakistan and India, most of the African countries fall into this category and thus they piled up mountains of debt.

The second reason is the mass illiteracy. Politicians of these countries squandered the national resources without being accountable to their illiterate people. Such masses are an easy prey to the strategies and politics of irresponsible politicians. After winning the seats in the national or provincial parliament, such politicians indulged in looting the nation in collaboration with high officials. According to one estimate, half of the Pakistan’s revenues goes into the pockets of the already rich people, leaving very little even for the basic needs of the poor masses. In case of Pakistan its 33.5 per cent of the total population is poverty-ridden. That simply shows how the major chunk of the population has been kept away from equitably sharing the resources of the country.

The third reason of piling up debt is the way the international trade is carried on. Until now what the developed countries in general and the USA in particular have demonstrated is that they give top priority to their self-interests no matter what happens to the rest of the world.The walk-out from Kyoto protocol,the rejection of the NMD Treaty,the sidelining of the role of developing countries in Uruguay round, the withdrawal of the USA from the UN conference on racism in Durban,etc, are the examples of such acts which prove that the developed countries are not sincere in implementing the international laws without any discrimination.

The internal and external factors both act on a developing country in such a way that it finds itself further deeply trapped in the vicious circle of poverty. The more the country tries to get rid of it by taking loans, the more it finds itself trapped in a debt maze.

Pakistan’s present dreadful economic situation regarding external debt is definitely not the outcome of the last few years but it started with the independence of the country. In the 50s most of the foreign aid that we got was technical assistance and foreign inflows were meagre. The need of the time was to assist the millions of displaced people. Savings and investments were low. The country was at its embryonic stage. The GDP growth of 3 per cent was about the same as population growth.

The 60’s is remembered as “the golden era” of the Pakistan’s economic history. In that decade the GDP growth rate was 6.8 per cent, the highest among all the five decades. The war in 1965 with India led to a setback and the level of aid declined from 10 per cent of the GDP to 4 per cent by 1970. Domestic saving rate and investment rate had reached 12 per cent and 23 per cent respectively.

The 70’s witnessed a fundamental change in Pakistan’s economic policies, and therefore had to bear accentuated pressure on the external finances. Economic conditions further deteriorated due to separation of East Pakistan, experiment with nationalization, two oil shocks, worldwide recession and bad weather. Pakistan did not receive much help in this period from the west. But foreign remittances, an important source of income, became a substantial factor. According to one estimation, Pakistan earned $36 billion during 1975 and 1995 only from the Gulf countries. The GDP growth rate in the 70s plunged to 3.9 per cent.

The 80’s brought us into a new situation. Pakistan became a front line state against the communist Russia, which occupied Afghanistan in 1979. The Afghan war brought an unexpected assistance from the US. The high growth rate of the GDP which averaged 7 per cent between 1978 and 1986 was only possible due to high level of aid from the USA. During the five-year plan (1978-83), according to Robert Laporte and Muzaffar Ahmed, the ‘yearly average’ of foreign aid committed to Pakistan was $1.45 billion, up from the yearly average of $871 million during the Non-plan period 1970-78’. This annual average of foreign aid committed to Pakistan during the sixth five-year plan (1983-8), rose to as much as $2.29 billion. Although those large sums of aids visibly proved healthy for the economy of the country but their latent effects latter proved to be disastrous in the shape of Afghan crisis. We simply postponed painful days for the later decades.

The 90’s saw even more burgeoning debt and its social and economic cost. The whole infrastructure remained crumbled. W nowe stand at the 120th position in human development index and 160th in the per capita income table.In the Standard and Poor credit rating we occupy the lowest rank. There is no other country lower than us. In the past few years we have been watching our name constantly in international transparency report being the most corrupt nations in the world. According to the debt reduction and management committee report the total stock of external debt obligation as at end-December 2000 was approximately $37.1 billion.

At present,Pakistan’s total debt is more than its GDP. Debt servicing takes away our 44 per cent of the total resources and if we add 18 per cent more for defence than it comes to 62 per cent. All the current expenditure constitutes around 83 per cent of the total resources. That leaves less than 17 per cent for education, industry, agriculture, health, science and technology and other development expenditure.Even for current expenditure we have to depend substantialy on loans.

The major change in Pakistan’s debt profile came about when non-concessional loans replaced bilateral grants and concessional loans. This shift. motivated by changing political orientation and donor fatigue on the supply side, resulted in a sharp increase in Pakistan’s interest and debt service obligations.During the 70’s grant covered 35 per cent to 50 per cent of external assistance. By 1995 it accounted for under 5 per cent. Presently in the wake of the new changing global political situation,in the context of the recent terrorist attacks in New York and Washington in which Osama Bin Laden is the prime suspect, has brought to Pakistan once again an opportunity for unexpected windfall, at least in economic terms. In this regard 4-pronged strategy is being adopted to deal with the external debt problem.

* Full access to the US and European markets in agriculture, non-traditional and manufactured goods, particularly in textile goods.

* Further provision of a sizable external loans.

* More relief, other than normal rescheduling with the support of multilateral agencies along with the backing of European countries, the USA and the Japan.

* Efforts to raise new bilateral loans.

Out total external debt as on 30th June 2000 was $36.5 billion. About 34 per cent of this debt is bilateral and 43 per cent multilateral. Much of the bilateral debt is shared by Japan, America, France, and Germany. While in case of multilateral debt major chunk is shared by World Band-with $7 billion— and the rest is shared by the ADB and the IMF.

To reduce our reliance on debt we must make intensive as well as extensive efforts in the following directions:

Export performance: On the export front we do have comparative advantage in wide array of goods like agriculture commodities, surgical instruments, sports goods, leather and textiles. Pakistan since its inception has been able to shift its export goods composition from primary to manufactured. The share of primary commodities which initially accounted for 99 per cent of exports was less than 20 per cent in 1996. By contrast manufactured goods which were almost negligible in 1947, accounted for more than 60 per cent in 1996. The share of semi-manufactured goods in recent years has risen to 22 per cent . But the one biggest weakness in trade has been its heavy reliance on a narrow commodity base. That has made it increasingly vulnerable to exogenous shocks. To deal with this situation Pakistan has to broaden its commodity base. Latest trend toward information technology could be exploited in this direction by working more on “software development.” India is working in that direction and now earns $5 billion from its information technology exports alone and that is more than half of our total export earnings. s By 2008 these are projected to touch $50 billion.

Revenue base: Looking at the burgeoning cost of debt there is a dire need to improve our revenue base. Looking at the last fiscal year’s performance the revenue target of Rs457 billion for the current year seems quite hard to achieve. Though various steps have been taken but still there is much need for improvement. Computerization of tax system, training of the CBR personnel, elimination of corruption and an increase in the number of tax payers are few aspects which need further attention.

Government consumption: Ggovernment’s current expenditure has almost doubled in last ten years, while development expenditure has been cut drastically. This reduction in public expenditure has created its own bottlenecks. Home remittances: This is yet another area which can help us in getting rid of heavy burden of debt. The USA alone requires 150,000 computer experts every year and for that purpose it generally issues visa, but we are unable to avail this opportunity. Indians take away almost 40 per cent (i.e. 60,000) of total visas issued by America. USA expects only 5 per cent from our country but we can not meet even that demand. Similar demands are being received from othe countries.To fulfil that we have to invest heavily in human resource development particularly in education.

FDI: The foreign direct investment (FDI)in 2000-01 stood at $232.3 million, which had declined compared to previous year. Unstable economic conditions, distortions in the process of implementation of policies and law and order situation in the previous years have been repelling foreign investors to pursue their projects in Pakistan.

Improvement in economic management, transparency in the working of government machinery, stable law and order situation would revive foreign investors’ interest in available prospects.