The government claims it has succeeded in reducing foreign debt from $38 billion to $36 billion in three years period. However, a number of issues, which were pinpointed specially by the Debt Reduction Committee headed by Dr. Pervez Hasan could not been addressed so far.
Although the government got $12 billion debt re-profiling from the Paris Club, the obtaining of necessary $6 billion exceptional assistance has also not been arranged to get rid of the most expensive debt as proposed by the debt committee.
It is generally said that exceptional foreign financing could be arranged due to improved sovereign credit rating by both Moody’s International and Standard & Poor. But this assistance cannot be achieved on concessional terms in order to lighten the heavy burden of multilateral debt payments. According to the debt committee, high and growing debt burden is the major cause of sharp slow-down in Pakistan’s economic growth and low investor confidence.
The committee had also called for increasing revenues, exports and speeding up the privatisation process. So far the revenue and export targets are on track. However, many people in the ministries of finance and commerce do not think that Rs 460 billion revenue collection target and $10.4 billion exports could be achieved by June 30, 2003. It is in that backdrop that the World Bank is believed to have advised the government to prepare a contingency plan specially to meet revenue targets.
Also there has not been significance success to achieve $3 billion target through privatisation during the last three years period. The medium term programme drawn up by the Privatisation Commission failed to privatise the much talked about Pakistan Telecommunication Corporation Limited(PTCL), the Pakistan Petroleum Limited (PPL), the Oil and Gas Development Corporation Limited (OGDCL), the Pakistan State Oil (PSO), the Karachi Electricity Supply Company Limited (KESC) and the Habib Bank Limited (HBL). The PC could achieve only one big deal that of the UBL which too became controversial. The failure in disinvesting KESC has also disappointed many, specially the Asian Development Bank which had provided roughly $150 million for this purpose. Former minister for privatization Altaf Saleem had been maintaining that since there was no improved climate for investment, foreigners were hesitant to come forward and buy the entities of the state sector. Also refuge was taken into 9/11 events for not finding good local and foreign parties for the privatisation of state sector enterprizes. Strengthening the regulatory framework for telecommunication, power, and gas and establishing the regulatory agency for petroleum also did not help to attract the buyers.
Generally, the PPP and the PML (N) had been accused of increasing the burden of foreign debt by seeking roughly $10 billion to $12 billion during their two terms in office. The Musharraf administration has been alleging that foreign debts were taken for consumption purposes and that was why the country’s debt increased to $38 billion which was later reduced to $36 billion.
The Economic Advisor to the Ministry of Finance, Dr. Ashfaque Hasan Khan, when approached disclosed that the State Bank is working on a plan to get rid of the most expensive $3 billion foreign debt. “There is no doubt that the most expensive debt needs to be retired to lower the debt burden and now this is going to be one of the main priorities of the government”, he said.
He said since foreign exchange reserves have risen to about $9 billion, the government does not need that kind of exceptional financing as proposed by the debt reduction committee. According to the understanding reached with the IMF, he said, Pakistan was to increase its reserves to $4 billion by 2003-04 which are much higher now at $9 billion. He said all assumptions of the debt committee have over performed, therefore, the government was now in a better position to address the issue of foreign debt.
Dr. Khan said that in absolute terms, increase in foreign debt by $100 million to $150 million annually is not a big problem. However, he said that the cut in most expensive debt should be taken very seriously to reduce the overall burden of the foreign debt of the country.
During the 1990, Pakistan’s fiscal deficit averaged around 7 percent, while the current account deficit in the balance of payment was around 5 per cent of GDP. These two deficits aused an explosive accumulation of public debt, which increased by almost four times from Rs 800 billion in 1990 to Rs 2,971 billion in 1999; and external debt, increased from $22 billion in 1990 to $38 billion in 1998. Consequently by 1998-99, 73 percent of total revenues and 40 percent of foreign exchange earning were consumed by debt servicing payments. Pakistan is thus caught in a vicious circle of high debt payments, which are leading to stagnation in investment and growth.. The government believes that without managing debt and social sector expenditure, as part of an overall macro economic strategy, the fight against poverty cannot be won.