Pakistan: impact of foreign debts

Published Jan 10, 2013 12:06am

IT is not denying the fact that a developing country has to rely on borrowings in order to achieve its overarching goals of economic stability and national development.

Proper debt management is the prerequisite for the sustainable economic growth of a country. There must be equilibrium in exports and imports so as to minimise the need for borrowing and overcoming fiscal deficit.

Unfortunately, the ever increasing foreign debt is one of the major problems besetting Pakistan’s lingering economy.

Pakistan is the third largest debt-recipient country in the region. Its external debts have been reported to reach 33 per cent of the GDP as compared to India’s 15 per cent and China’s seven per cent.

There are several factors, including domestic problems and international economic recession, behind this debt dynamics.

The increasing debt-to-GDP ratio is mainly due to declining-tax-to-GDP ratio as out of 190 million only 1.8 million people pay tax. Rampant corruption is the key factor in this regard.

According to the Transparency International annual report, Pakistan is at 34th position among the most corrupt countries of the world.

Apart from this energy crisis, including the erratic power supply, crippling inflation, growing security spending and low productive capacity have led to fiscal deficit which, in turn, increases foreign debt.

Pakistan is not in a position to formulate an independent fiscal policy due to these external debts and its struggling economy is at the mercy of leading lenders like the IMF and World Bank.

In a nutshell, Pakistan’s economy is at a critical juncture and there is a dire need for taking a pragmatic approach regarding fiscal management and independent decision-making as it is the only sine qua non for economic development.

SAJAWAL M. GHUMMAN Lahore

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Comments (5) (Closed)


independentthinker
Jan 10, 2013 10:53pm
corruption is from top - down. Unless our leaders decide to give up filling up their own pockets with bribes, there is no hope for the rest of us to see any change. how can a small percentage of our population carry the load of all of us, by paying their share of taxes. If our leaders stop accepting bribes, they can instill the same values on their sub-ordinates. I have seen income tax officers making mediocre salaries, but living like millionaires. Police officers living way beyond their means. These are just a couple of examples, but corruption is wide spread - again, starting from the top.
george
Jan 10, 2013 10:09pm
No problem. As long as Pakistan can terrorise the west, money will flow in.
Reet
Jan 10, 2013 10:16pm
So, going bankrupt financially too, eh?
Ahmer
Jan 10, 2013 05:15pm
How much more belt tightening can we do? Many countries under heavy debt have used the threat of default and forced the external lenders to write off some of the debt and renegotiate the terms of the remaining debt to a lower interest rate and longer term.
Kris
Jan 10, 2013 04:51pm
You mentioned corruption in Pakistan. Dawn has published so many articles on corruption but it is not going away. We are electing our leaders most of them do not pay their taxes and hence money does not come in to treasury but we need money to spend on the development programs. Our population is exploding at the highest rate when our resources do not expand proportionate to the population growth. We used to feed the world and now we are dependent on the world for feeding ourselves. I think the solution starts with check on corruption. How to do this - no one knows how.