Did all those who held office in Pakistan raise its external debt to unmanageable heights forcing it into a debt trap and making it essential to call for re-scheduling of repayments from time to time?

Did the international aid agencies bring us to this pass, or is the excessive borrowing and reckless spending by those in office in the 1990s responsible for this sorry plight, as the resident director of the Asian Development Bank in Pakistan Marshuk Ali Shah asserts?

He holds the excessive borrowing by political governments of the 1990s which the governor of the State Bank of Pakistan dubs as the “lost decade”, including short terms borrowing from private sector lenders, responsible for the heavy debt burden Pakistan is now under.

The debt burden might not have become so acute if Pakistan had not devalued its currency so heavily bringing to Rs 61 to a dollar from 9-90 to a dollar when the rupee was de-linked from the dollar in 1982 and set it afloat. Now the government has to raise Rs 61 instead of 9.90 to repay a dollar of debt or service it.

While the external debt has a foreign exchange availability dimension as well the overall debt burden might not have become so acute if along with the external debt the domestic debt had not been soaring and stands at Rs1,800 billion today. And it has a far higher interest rate than external debt and it is not repaid but allowed to float up as new loans are raised to service the old. As a result the total debt servicing cost this year is Rs328 billion, as budgeted, with the cost of servicing domestic debt alone at Rs198 billion.

If along with that, Pakistan had not opted for higher cost short-term loans from international banks and other sources, including through bonds, the pressure on the government might not have been too heavy. But in desperation to meet urgent foreign exchange commitments it borrowed at any price from almost any available source.

The government got large foreign currency at much cheaper prices and with none of the humiliating conditions for foreign lenders including banks, through the foreign currency deposits of resident and non-resident Pakistanis, which rose from 2.1 billion dollars in 1990 to 10.9 billion dollars in 1998. Then the nuclear devices were exploded and there was run on the bank to dispatch the money outside and the government repudiated the foreign exchange commitment and repaid much of those deposits in rupee. As a result the foreign currency stood at one billion dollars by December 2000.

The overall foreign currency debt which stood at 4.9 billion dollars in 1980 rose to $21.9 billion by 1990 and to $38.9 billion by 1996. In fact the debt, inclusive of the foreign currency deposits of Pakistanis had risen to $42.7 billion by 1998 when the deposits were frozen and repaid in rupees following the nuclear explosions of May of that year. Since then the total foreign currency debt has come down to 37.1 billion as on December 21, 2000. And that happened because while some of the old loans were repaid and too little of new loans were forthcoming until after September 11.

The 1990s were the years of the politicians which in fact began with the general elections of 1988 which ushered in Benazir Bhutto as the Prime Minister after the Zia era. And they felt obliged to spend more and more to please the voters and get re-elected, as Nawaz Sharif tried to do through his infamous taxis scheme. The taxis vanished too quick from the roads and some of them ended up in Afghanistan and Central Asian states or became private cars. And some were ultimately sold to government employees at confessional rates because of tax exemption.

The political regimes opted for large borrowing as the revenues could not match their high spending and as they did have to repay the loans. They had raised. While the borrowing done as dome stick debt was a part of the floating or non-refundable debt, the external loans had to be serviced after a long grace period. Both suited the political borrowers.

Foreign loans had an additional advantage. Interest on them had an average rate of 2 per cent then, while domestic debt cost upto 18 per cent in interest rates Dr. Mahbubul Haq as finance minister and prior to that as minister for planning used to drive home this point frequently.

International aid agencies and donors also felt obliged to help new political regimes like that of Benazir Bhutto, first woman prime minister of a Muslim country. And the new regimes usually came up with attractive reform and development agendas and the donors were inclined to fund them.

Successive regimes in Pakistan have always been ready to accept the stiff conditionalities of the IMF and the World Bank to get medium term aid packages approved by the donors after some demurring. And after the government got the first tranche or the second, it forgot all about their commitments to the donors. Hence Pakistan came to be known in IMF circles as “one-tranche country” which brought in harsher conditionalities when negotiations for a new aid package began.

But now Pakistan, like other developing countries, see- king aid are expected to own up the package as their own and implement them diligently, while the IMF inspectors or World Bank teams will inspect out performance before the release of each tranche.

The nature of the aid too has been changing. If we sought aid for development projects earlier, we sought budgetary support and balance of payments assistance later. Then came the phase of social sector development with emphasis on education and public health which resulted in SAP I and II. And now we are seeking loans for poverty reduction and reform galore.

The Asian Development Bank released in December last $150 million for judicial and police reforms and restructuring of trade and industry. The $100 million access to Justice Programme is designed to enable the poor to exercise their right under the law and protect their property being taken away by the bureaucratic or political elites. It is to provide for free legal advice and advocacy for the poor by civil society. The programme is meant to strengthen rule of law by providing resources to strengthen the judiciary and the police. And the Asian Development Bank is also giving $250 million for capital market development following the $200 million given earlier.

The ADB is also giving $300 million for funding the new devolution process, and $100 million for civil service reforms. It is giving $350 million for re-structuring the KESC.

While large funds are being committed in the name of reforms and structuring, will the great new changes promised really come about? Will the poor be really the gainers for the large sums the country is borrowing for their benefit?

Or will future governments and critics blame the IMF and the World Bank for lending so much money for reforms and leading us to another debt trap after we have crept out the earlier one or are having been treated to partial debt forgiveness.

If we had used the earlier loans well accelerated economic growth and promoted social justice we might not have come the present pass. In fact if we had got the aid for all the projects and programme for which we had sought that, instead some of that being cancelled outright in the beginning or midway, we would have been in far deeper debt.

Even now Mr. Marshuk Ali Shah complains of excessive delays in completing projects and needless other delays, and delay in the appointment of project directors which may force the ADB to cancel the committed funding.

He says that a change in the attitude of the government in hastening project completion might not have come about if the ADB has had not told the government it was withdrawing from the key flood protection and national drainage projects announced with a great deal of fanfare.

Such delays during the 1989s and earlier had resulted in $10 to $11 billion of committed aid funds remaining in the pipe line. The government was paying half a per cent interest too on that untilised loans. But in recent years the aid use has been greater, more so because additional aid had been coming as a trickle after the nuclear explosions of 1998.

What is at issue, despite the large debt re-scheduling, is the manner we draw up our development projects, execute and manage them, cut down waste and misuse, appoint the staff, and get the best results which should negate the past performance in this regard.