ISLAMABAD, Jan 14: The government needs to closely monitor the use of loans and to adopt systematic thinking to avoid getting bad loans, says a senior economist.

Speaking at the 17th Annual General Meeting of the Pakistan Society of Development Economists (PSDE), President of the Pakistan Institute of Development Economics (PIDE), Dr A.R. Kamal also said that good national policies were necessary for economic revival.

Debt reduction, he said, was sometimes necessary but never sufficient to restore external viability. He said that the preceding analysis showed that even though debt burden as percentage of GDP of Pakistan exceeded that of all the South Asian countries, it still was not that high to qualify for debt write-off.

“This implies that Pakistan has the capacity to service the debt,” he said. In that context, he said, rescheduling over long run to avoid illiquidity through re-profiling of debts assumed great significance.

The PIDE president said that debt rescheduling by the Paris Club was expected to improve positively the Pakistan’s economy in a number of ways. Firstly, agreement with IMF culminating in the debt rescheduling over a longer period would hopefully improve credit rating of Pakistan and help in the investment and growth process.

Secondly, he said, a sharp reduction in the external debt servicing has provided fiscal space to pursue development work and the programmes that directly or indirectly impacted the poor positively. Thirdly, he said, it would allow State bank of Pakistan to pursue a monetary policy that stabilized the economy without squeezing the investment level.

“While debt rescheduling would definitely help in the growth prospects and resultantly employment and real wages may start rising and poverty is reduced, we must ensure that the debt crisis does not recur again,” the PIDE president advised.

He said it was also to be ensured that the fiscal space was used for public investment and the total savings and investments should also rise.

He said that stagnant investment and savings levels would imply that the future generations would face an even more acute problem of debt than had been experienced recently.

Dr Kamal said that rising levels of debt and debt servicing, falling rates of investment, declining growth rates of output and employment, and sharp increase in poverty summed up the disappointing performance of Pakistan’s economy over the last decade.

By the end of last financial year, he said, external debt had increased to 30 billion dollar, and the ratio of external debt and the present value of debt servicing stood at 64 per cent and 80 per cent of GDP respectively.