June 19, 2006	Monday	Jumadi-ul-Awwal 22, 1427

AFTER an extensive and prolonged privatisation, a good many write- off of foreign loans and additional economic aid by the donors, why has the foreign debt come down in seven years by only $2.3 billion to $36.6 billion?

While Benazir Bhutto as prime minister used the privatisation sale proceeds to finance the public sector development programme (PSDP), the present government has used 90 per cent of the privatisation funds to repay the foreign loans, Omer Ayub, minister of state for finance told the senate.

After the privatisation of Pakistan Telecommunication Corporation Limited (PTCL), United Bank Limited, Habib Bank and the sale of shares of many public sector companies like the National Bank, Allied Bank and the Pak-Arab Refinery, we are told by the exuberant minister that $1 billion of costly Asian Development Bank debt had been repaid. Is that all, if 90 per cent of the sale proceeds of large enterprises were sold?

During the period, the size of the economy in terms of GDP as well as tax revenues has more than doubled and the record economic growth of 8.4 per cent last year and 6.6 per cent in current fiscal has placed far more resources at the disposal of the government to repay the loans which is becoming more burdensome in terms of rupees because of the steady devaluation over the years. Domestic debt does not increase in terms of rupee but foreign debt does proportionate to the devaluation.

Former privatisation minister Dr Abdul Hafeez Shaikh said recently that in three years privatization sale proceeds of Rs285 billion was received. That is equal to almost five billion dollars, so far more should have been paid to reduce the foreign debt, if 90 per cent of the sale proceeds were to be used for that, as committed by the government.

In the previous 13 years the Privatisation Commission conducted the sale of assets for Rs36 billion—-Rs850 a year on an average. Sheikh gave this figure before the large privatization proceeds from the PTCL came in and his figure shows that far more should have been spent on the repayment of the loans and the debt brought down further.

Under the Privatization Ordinance-2000, 10 per cent of the funds are to be used for poverty reduction. Has that been done or have other funds been used for that purpose.

It is not enough if the present government blames previous governments for not making proper use of the privatisation funds. It should itself demonstrate that it is using the funds properly and account for that in detail. It is not enough saying the external debt has come below the safe margin of 60 percent of the GDP, when the enterprises for which the loans were raised are being sold off one after another.

We should not be left with the debt while the enterprises for which it was raised are in someone else’s hands. When Pakistan is seeking new loans like the $6.5 billion from the World Bank for four years for various projects , Omer Ayub cannot assert that the ‘kashkol’ has been smashed forever.

The warning of G8 finance ministers against the new rich countries luring the poor countries in to new debt traps is significant. Meeting in Saint Peters Burgh, the finance ministers said that while the traditional donors were writing off their loans to the very poor countries, new donors were providing new loans to such countries without enough thought.

Omar Ayub said our foreign debt and liabilities stood at $38.93 billion, but now that has been reduced to $36.6 billion.

He said that between 1994-1999 when Benazir Bhutto and Nawaz Sharif were in power, Rs5 billion privatization funds were used for financing the PSDP.

If the privatisation to the extent of RS285 billion had been done in the last three years before the PTCL and Pakistan Steel were put on the auction block, why was not far more of the foreign loans cleared, at least to the extent of $3.5 billion.

Or the figures the minister for state has mentioned is the gross income and includes the golden handshake amount for the staff, loans repayable by the privatised companies and tax claims due from them.

Omar Ayub ought to clarify the issue so that the picture will be clear. In fact, after each enterprise is privatised ,the official statement should clarify all these points and show the net amount received by the government.

In fact, at the end of each year, the government should come up with a composite statement instead of blaming earlier governments of misusing the privatization funds and state to what extent it has reduced the foreign loans.

More and more persons have begun moving the courts against what they see as dubious privatisation and the courts see merit in their contention. So if the government does not come up with clear statements and convincing figures, the usual charge that the family silver has been thrown away for as song, may stick.

The privatisation policy and procedures are framed by the government and it should make a success of them. Otherwise, after the privatisation of Pakistan State Oil, the Sui Southern and Sui Northern, National Investment Trust (NIT) and other major public sector units our foreign debt may still be very large and we will be taxing the

people to service the loans, while the domestic debt keeps on increasing.

While we have a mounting external trade and balance of payment deficit, our foreign exchange reserve growth is almost stunted. We have to do almost everything possible to reduce the foreign debt and the cost of servicing it.

At a time, when foreign exchange remittances are increasing because of the sending out of the profits of foreign investment, our old foreign exchange burdens should be reduced as we create new burdens.

And when our exports are not growing as fast as we want, while the imports are growing very fast, we have to see how we can reduce the foreign debt and the cost of servicing it.