There is a great paradox in the current economic situation in the country. Taking cognizance of this, the State Bank Annual Report for 2002-03 (FY03) observes:

“Despite the impressive improvement in the macroeconomic fundamentals, strong and secure external sector, development spending by the government, upsurge in growth rate, easy monetary policy and quantum jump in private credit, popular perception about the economy amongst the media and commentators does not reflect the improvements”.

There can be no denying the fact that the improvement is yet to impact the common man who faces hardship arising from mass poverty, which, according to the State Bank Report , will take some time to alleviate, in spite of the government effort. The increasing incidence of economic suicides not only of individuals, but also of the entire families speaks volumes of the ground realities. To understand this, one must look into the nature of improvement and its basic sources.

The most dominating factor has been the spectacular improvement in the external sector, which used to be a matter of grave concern prior to 9\11, giving sleepless nights to economic managers. This has been reflected in the build-up of foreign exchange reserves to the record level, which, in turn, was mostly the result of a phenomenal increase in workers’ remittances from abroad. The bulk of these, originated in the US, which shot up from $82.0 million in FY 99 to $779 million in FY 02 and $1.24 billion in FY03 to account for 29.2 per cent of the total remittances in that year.

The remittances from the UK also rose from $73.6 million to $273,8 million over this period. The residual category of “Others” rose from $33.4 million to $727.6 million. The share of the traditional source of the Gulf Region was reduced from 60.5 per cent to 44.7 per cent. The US government paid $300 million in FY 02 and $847.2 million in FY 03 by way of reimbursement for logistic support to the US anti-terrorist campaign in Afghanistan. Foreign investment brought in $140 million in FY01, $478 million in FY 02 and $798 million largely representing the proceeds of privatization of public assets. The sale of the UBL alone brought in $ 299.6 million.

External loans have also made a significant contribution to the build-up of the reserves. Net receipts on that account (loan disbursements minus amortization) were $1,026 million in FY 01, $1,359 million in FY 02 and $518 million in FY 03. This is inconsistent with official claims, so frequently made, of a reduction in external debt since FY 99 and needs to be explained. What the officials quote as external debt is some thing more than that. It is a case of tyranny of words. The complete title of external liabilities is “external debt and liabilities, “ (TDL) The latter, standing for foreign exchange liabilities, embrace the FCAs, the NDRP, Special US dollar bonds, central bank deposits, the NBP (the BOC), the FCY bonds (the NHA), Swaps, etc. Of these, the FCAs are most important. It is this component of the TDL that has been declining and has since been reduced to zero and has brought down the TDL, as was expected. Otherwise, external debt as such has increased, despite large debt write-off aggregating $1.2 billion by the US, by $2.1 billion or 6.6 per cent, since 1999 to $33.352 billion. Table -1.

There has been a significant change in the composition of the debt. Private non-guaranteed debt declined by $1.4 billion to $2.03 billion. On the other hand, liability to the IMF rose from $1.8 billion in 99 and $1.5 billion in 00 to $2.1 billion in 03. In addition, public and publicly guaranteed debt rose by $3.13 billion or 12.0 per cent to $29.7 billion.