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| March 15, 2007 | Thursday | Safar 25, 1428 |
Conduct unbecoming
Indian consulate in Karachi
Seeking loans for development
TOTAL public debt of Pakistan which was equal to 100 per cent of its GDP in 1999 came down to 50 per cent of the GDP in the first quarter of this year. Debt equal to 70 per cent of the GDP is universally regarded as a safe margin. And yet the total public debt went up to Rs1.46 trillion in the seven years of military rule which is a large sum.
AS the world debates the prospects of an American invasion of Iran, there comes an olive branch from the Iranian foreign minister to defuse the mounting crisis. Mr Manouchehr Mottaki has hinted that his government is prepared to offer guarantees on its nuclear programme if the issue is withdrawn from the UN Security Council. There are too many ifs and buts in the situation to encourage any optimism but it at least offers a way out of the deadlock that the two sides find themselves in. The danger is that if the US and its European allies insist on confronting Tehran in the UN Council on the nuclear issue the situation will remain volatile. As it is, a consensus on a draft resolution on sanctions against Iran is not easy to obtain. Even if a resolution is adopted — as UN Security Council Resolution 1737 of December 2006 was — it would hardly offer a solution. The possibility is that the crisis will continue to simmer making Iran another hotspot in the Middle East.
Although Iran’s nuclear programme — especially its uranium enrichment project — has been the focal point of the controversy, it need not have triggered the crisis it has. The fact is that the United States has seized upon Iran’s programme as a pretext to create tension and anxiety leading to a fear of an American attack on that country. When the uranium enrichment aspect of the Iranian nuclear programme first surfaced in 2003, the IAEA was closely involved in the inspection and monitoring of the Iranian nuclear projects. In the last about four years, the IAEA has not found Iran violating any provision of the NPT that would warrant penalising measures. In spite of the American accusations that Iran’s programme was directed towards making a bomb, the IAEA is on record as reporting that the level of uranium enrichment is so low that it cannot be used for manufacturing a nuclear device. In that case, one wonders what is disturbing the Western powers? If it is simply a genuine concern for non-proliferation, then one wonders why Israel, which is ahead of Iran in terms of its nuclear capabilities — it is known to possess several atomic bombs — has not been taken to task. American intentions do not appear to be noble.
With Iraq in a mess thanks to the war imposed by the Bush Administration, Palestine in turmoil and Lebanon’s crisis still not resolved, this is not the time to open a new front in Iran. But that is precisely what Washington is planning out to do — if not by starting a war then by destabilising Iran. War is hardly what President Ahmadinejad is biding for. But the hardliner that he is, the Iranian leader would not like to be seen as succumbing to western pressures. The overtures his government has made — the present one is the latest — have provided an opening for compromise. If the West does not explore the possibilities of a peaceful resolution of the crisis, the situation could go out of hand. The United States should have by now learnt from its Iraqi adventure that the Middle East is not the place to play a game of brinkmanship. Another war will not only open yet another Pandora’s box in the region; it will have its fall-out on international politics triggering a global crisis.
PERHAPS the federal minister for law, justice and human rights draws strength from the fact that he no longer has a reputation to protect. Even by his notoriously lax standards, Mr Wasi Zafar plummeted to new depths of ignominy on Tuesday when he thoroughly disgraced his office during a radio discussion, aired internationally, on the action initiated against the Chief Justice of the Supreme Court. Although the law minister claimed he was speaking in parables, the implicit threat was clear: he would sort out not only the Islamabad-based journalist who was also a panellist on the Voice of America programme and with whom he apparently has a history of bad blood, he would fix his family as well. Resorting to language generally associated with semi-literate goons, the minister left listeners dumbfounded, with little doubt that might is right in Pakistan — a country where high office can be occupied by persons with no grounding in even the basics of decent and dignified behaviour. So crude was Wasi Zafar’s verbal onslaught that his distorted version of recent events in Islamabad was as stupefying as was verbal excesses.
This is not the first time that the law minister has been guilty of conduct highly unbecoming. In August 2005, he had no compunction looking the other way as his son badly beat up a fellow passenger in the departure lounge of the Karachi airport. The latter’s ‘crime’ was that he had dared to ask why the minister’s son was being allowed to proceed to the reporting counter without being subjected to the body search that all non-VIP travellers must routinely go through. Some ten months earlier, in October 2004, an infuriated Wasi Zafar had left his seat and, apparently eager for a physical fight, dashed to the opposition benches in the Senate after being heckled and criticised. The law minister is also accused of slapping a waiter at a five-star hotel in Islamabad. The reason: he was dissatisfied with the slow pace of service. Wasi Zafar is a loose canon, one who does not care for decency and decorum in conduct. It is time his superiors briefed him on some behavioural do’s and don’ts.
IT IS always the people of India and Pakistan who suffer the consequences of the thorny relationship between the two countries — a fact painfully driven home by the delay in opening consulates in Mumbai and Karachi. The consulates were shut down in 1992 and the issue of their re-opening was mentioned as part of a confidence-building measure in late 2003. Nearly four years later and lots of promises of the consulates being re-opened “soon”, neither country is willing to give an exact date. Pakistan has had serious problems finding a suitable premises for its consulate in Mumbai. Its request to use Mr Jinnah’s house was turned down and another location was considered a security risk two years ago but no progress has been made since. However, India’s consulate in Karachi exists and can be made functional any day, but thanks to diplomatic reciprocity, its opening has been linked to Pakistan opening its consulate in Mumbai. This is only harming Pakistanis wanting to travel to India using the Thar Express which was opened recently to facilitate travel. Sadly, those wishing to travel by train have to go to Islamabad to get their visas which only adds to their expenses and hardship.
This state of affairs should not continue for long. While it searches for a suitable premises for its consulate in Mumbai, Pakistan should allow India to open its consulate in Karachi as this will benefit its people. It needs to be sympathetic towards its own people who are unable to visit their near and dear ones in India because of the visa problems. The more people-to-people contact there is between the two countries, the more likely is it that peace prospects can improve. Functional consulates is just one step towards achieving that goal.
The public debt was equal to 629 per cent of the federal taxes in 1999 and has come down to 336 per cent by now and the debt burden has become less heavy. The paradox is explained by the fact that as the GDP growth increased particularly in recent years, the share of the debt burden in terms of the GDP went down — more so during the last three years.
And as along with that the tax revenues increased the total debt in terms of the tax income went down to almost a half of 629 per cent from 1999. That means that the ultimate solution to the debt problem, particularly of the rising domestic debt, lies in higher economic growth and larger tax income, along with, of course, “distributive justice”.
The higher the debt, the larger the resources diverted to reducing the debt burden and heavier the interest rates and the options to choose less costly debt also become less.
And the major lenders tend to dictate their own terms, at times arbitrarily. Hence the minimum of loans should be taken and at the lowest possible rates of interest and with a long grace period.
The foreign debt is not coming down substantially as new loans are taken when the old loans are repaid. In the fiscal year 2006, foreign debt of $3.1 billion was repaid, but new loans of $3.05 billion were taken.
The Debt Policy Statement issued by the finance ministry says that if new loans are not taken, the present external loans will take about 30 years to be repaid at a rate not exceeding $1.6 billion per annum –- a total of $48 billion.
But large new loans will have to be taken for building the five large dams and rebuilding the infrastructure for industrial and commercial development particularly from the World Bank and the Asian Development Bank. But they should be negotiated at low rates of interest, as on IDA terms of a half to two-third per cent and with a maximum grace period and they should be utilised in time as committed as otherwise Pakistan has to pay heavy committal fee as it had been doing wastefully for long earlier.
Even now the World Bank and the ADB are urging Pakistan to make proper preparations for building the dams that it needs instead of indulging in a great deal of prevarication or foot dragging for political or other reasons.
Although the dams are urgently needed for providing water, the government is taking long time in making the necessary arrangements. Anyway, once the finances are committed by the donors, construction of the projects should not be delayed. It is equally necessary to complete the projects in time as delay can mean spending far larger funds as in the case of Ghazi Barotha dam.
Foreign loans carry an extra risk. If the rupee is devalued or is floated down or if the dollar becomes stronger in the international market, the rupee cost of the foreign debt goes up and the government has to mobilise more rupees to repay the old loans. At the moment, the government is buying dollars at almost Rs 61 to service foreign loans obtained at Rs 9.90 for a dollar or a little more in the 1970s and 1980s.
Another dimension of foreign loans is political riders they come with particularly when they are large. We have to accept the political terms of such loans which can infringe on our sovereignty.
That is more so when it is defence aid or strategic assistance. In the case of the US, which is a major donor in the military as well economic spheres, the political riders are too heavy and their leaders even threaten to cut the aid if their demands are not fully met.
But when it is aid from Sweden, Norway, Denmark or the Netherlands which is rather small but is very valuable, there are few political conditionalities.
Foreign aid also becomes expensive when it is tied aid as sometimes it is.
If we have to accept very costly consultants and pay them heavily out of the loans, the net loans get reduced. And if the machinery for the project has to come from the lender states, that can be more costly than the one we can get from other sources. It was said in the past that almost 85 per cent of the US aid goes back to the US. Things have changed considerably now and the tied aid has become less frequent.
Since domestic debt is free from such encumbrances, the government has opted for that on a massive scale. So the country’s outstanding domestic debt reached Rs 2.422 trillion by the end of 2006, showing an increase of 36.5 per cent since the year 2002 when it stood at Rs1.744 trillion.
There is no critical non-payment or repayment problem in the domestic debt as the permanent debt which includes prize bonds, other government bonds, treasury bills and Pakistan Investment Bonds and the unfunded debt mostly from National Savings are refloated when the old loans are replaced.
So, the government has a nonchalant attitude to domestic loans but the government has to pay interest on the domestic loans which it tries to keep low. The National Savings Organisation has been paying interest rates on deposits less than what it should be paying normally. Unlike the foreign creditors, the domestic lenders exert no pressure on the government and give much of the money that it needs.
Had they done so, the government would have borrowed less from the public and tried to mobilise more from tax revenues. The domestic debt jumped by Rs 957 billion to Rs 2.364 trillion in the first quarter of 2007 from Rs1.398 trillion in 1999 — a 69 per cent increase.
The State Bank of Pakistan urges the government and the commercial banks through treasury bills and PIBs rather than asking the State Bank to print more currency notes for it and using the National savings funds. That is part of its tight monetary policy to reduce the money in circulation and fight inflation.
The domestic debt, unlike foreign debt may not seem to have a political dimension, but the fact remains that year after year, the debt servicing cost is going up. It rose to Rs301 billion last year from Rs247.7 billion the year before. The interest payments on domestic debt amounted to Rs190 billion.
And with interest rates in Pakistan rising, a larger part of the taxes paid is bound to go for debt servicing each year. It was 25.5 per cent of the national expenditure incurred last year and will be 23.6 per cent this year which is a large part of the revenues collected. If instead more of the revenues collected goes into development and infrastructure, the rate of development will be far higher.
All this is happening at a time when very large funds — as much as over $ 20 billion are needed for the construction of the five dams and we have to borrow heavily from the World Bank and other mega lenders.
There is nothing wrong with borrowing in the modern world, individuals and states do that. What matters is what you do with that money, whether you invest it judiciously and create safe avenues to service the loans and eventually repay that in full in time and the country eventually benefits from such large borrowing.
When as much as 25 per cent of the official expenditure goes towards debt servicing and the tax revenues are not very elastic, we have to be careful when generating new debt.
To begin with, the project should be ready as we obtain loans because the project should not get bogged down in political squabbles or in disputes between the provinces or between the centre and the province as has been the case with the Kalabagh dam.
Anyway we should avoid keeping borrowed funds in the pipeline and paying a penalty of half to three-forth per cent out of the unused money.
The schedule for building the aided project should be adhered to strictly unlike what happened to the Ghazi Barotha dam. Delay in the construction of the project is as fatal as an excess of corruption in such schemes and. And too many consultants should not be eating much of the construction money.
The project should be completed in time. All this may sound idealistic but when we have to raise as much as $20 billion for the five major dams, any slackness in the approach to such projects is impermissible.
Great alert is imperative in handling the new projects funded from external loans. The debt watch by the finance ministry under Dr. Ashfaq Hasan Khan is good, but there should be a total approach to the whole spectrum beginning with the aid seeking to completion of the projects and their utilisation.
Fifty per cent of the GDP as public debt and 25 per cent of the public expenditure for debt servicing are large enough figures. And we have to show greater efficacy in the aid utilisation in getting the projects ready to help the people who have been making great sacrifices in the name of development.