Soon after the September 11, 2001 tragedy, Pakistan allied itself with the USA in the latter’s war against terrorism. Nearly all the key nations, Muslim or otherwise, rallied behind the USA.

However, Pakistan’s was a key position amongst the then US allies. Its key position notwithstanding, the USA at that time would not relent on the issue of a billion dollar bilateral debt write-off. Pakistan had tried very hard to secure this benefit especially under domestic pressure for seeking a bonanza from its support to the USA.

While limited market access was ceded by some Western countries, the USA required a lot more from Pakistan vis-a-vis its anti-terrorism stance. And, while President Musharraf’s famous January 12, 2002 speech was well-received, the anti- terrorist coalition leader indicated that further action on the ground would be awaited in this direction. Pakistan’s actual response would be watched before further movement on the billion dollar write-off issue.

Whether Pakistan made any further progress on the specified non-economic reasons for the above bilateral debt write-off can be seen by all; its political positional advantage, however, did get enhanced during the Iraq war that may have, inter alia, facilitated the long-awaited write-off. While the ministry of finance would take all the credit for it, there was nothing significantly different in Pakistan’s political policy either that could have led to the above outcome. It was perhaps the current stage of USA’s anti-terrorist strategy that would now desperately require more friends than foes that may have, inter alia, encouraged the above outcome long awaited by Pakistan.

While the ministry of finance may claim credit for the reduction in net external debt from $36.9 billion in June 2000 to $28.67 billion by December 2002 and $27.6 billion after the above billion dollar debt-write-off, the Minister of Finance, Mr. Shaukat Aziz, accepts that the “US had provided about $3 billion assistance to Pakistan in response to Islamabad’s unwavering support against Taliban and Al-Qaeda.

This includes $1 billion debt relief, budgetary supports and grants, $142 million trade measures, and new loans and guarantees provided by the US EXIM Bank and OPIC.” US Secretary of State Colin Powell said that debt relief was just one piece of a multi-faceted and multi-billion dollar assistance package the US was providing to Pakistan. The US had also indicated $395 million assistance for Pakistan in 2004 budget “as part of efforts to assist countries in the fight against terrorism.” At the write- off signing ceremony, the US Ambassador said, “The United States is in Pakistan for long term.”

Pakistan’s bilateral debt to the US now stands reduced to $2 billion from $3 billion.Pakistan hopes to get another $1 billion debt relief from the USA.What does all of the above mean for Pakistan’s economic and political future?

According to the finance minister, debt servicing would now cost 40 per cent of the budgetary resources as compared to 64 per cent previously. It is, however, important to know the extent of reduction in debt servicing that would come from debt write-off and the percentage reduction due to debt rescheduling. Only then would one be able to ascertain the debt servicing burden that has actually been reduced permanently and that postponed to future generations.

Nonetheless, a 24 per cent reduction in the debt-servicing cost in the near term should translate into some concrete socio- economic benefits for the deprived in the country. We have yet to see a plan in this direction. That is, how would the resources that would be freed up in the near term would be turned over into tangible benefits with long-term implications?

For, debt servicing to total budget ratio now given by the finance minister is of the order of the ratio that existed around the decade of the 1980s. In fact, it was about 36 per cent in 1979-80 and rose to about 45 per cent by 1989-90. The state of development or underdevelopment then is, however, comparable to the current situation in many ways.

It would, therefore, be naive to assume that debt write-off as above would, by itself, lead to a boom that many-who-matter dream about but have difficulty realizing mainly due to an absence of a strategic direction. It is easier to explain the utilization of federal budgetary resources if the bulk is consumed in debt-servicing and defence than would be the case if resources are freed only to be “used” in a manner that only the government statisticians would be able to see and rave about.

It will then become that much more difficult to mobilize tax revenues as the tax payers would then have an additional strong reason for evasion if they will not see proper utilization of their tax payments. Instilling confidence in the current and prospective tax payers would then become that much more difficult. The issue of tax revenue generation is then likely to compound even further.

It is, therefore, exceedingly important to prepare a blue print for the utilization of resources freed up from debt servicing in the near term. The blue print should be made public and evaluated periodically while keeping the people posted on developments in a manner that would be difficult to dispute. Otherwise, few years down the road, we will have new heads of the government wanting to know as to where the freed up resources went just like the present incumbents remain keen on knowing about where all the aid and external financial assistance went that was received in Pakistan in large amounts.

Even more important than the issue of resource availability is the issue of resource utilization in Pakistan that should be transparent and that should stand all independent tests of accountability. People should be able to see as seeing is believing.

Pakistan’s waiver from US sanctions, due to expire September 30, 2003, might be extended by another two years as a bill has already been moved in the US Senate. The proposed 2004 budget includes $200 million under the Economic Support Fund (ESF) for Pakistan, $75 million for foreign military financing (FMF), and $1.25 million for military training. Another $38 million earmarked/proposed for law enforcement and narcotics control programme. In the same vein, another $1 billion bilateral debt is likely to be written- off.

While, as said before, these are opportunities that should be turned over into tangible and visible economic gain for the nation, the post-9/11 political scenario appears to be taking a clearer shape under the rubric of global peace that many read as security for the American nation first and foremost. For, the superpower set out to deal first with the symptoms of the cause behind threats to security of the world.

In the process, a universal view of security is likely to be promoted worldwide. This would amount to even more globalization politically. US rejection of theocracy in Iraq, an anti-terrorist Abu Mazen to head the Palestinian cabinet, meaningful relocation of USAF from Saudi Arabia to Qatar, US threats to Syria and Iran against their support to terrorism, and a favourable US view of the smaller Gulf States are links in the anti-terrorist chain that the US is now all out to forge.

While Pakistan’s financial support from the US is to be seen in the above light which is now also accepted by none other than our finance minister, President Musharraf now appears to be filling the missing links since his well-remembered January 12, 2002 speech, at least, rhetorically. On April 29, 2003, he announced that our biggest threat is from extremism and not necessarily from a foreign power. We seem to have come full- circle on the debt write-off question.

As Pakistan’s anti-terrorist agenda unfolds into action, there is a need to urgently put together a resource utilization programme, at least, for the near term. Over the long-term though, it will be the extent to which we will be able to disengage from an extremist outlook and disposition that will, inter alia, have a key bearing on Pakistan’s economic growth, investment, and development prospects.