Efforts to fully realize people’s economic potential – in countries at all stages of economic development – are falling short due to ineffective deployment of skills throughout the workforce, development of future skills and adequate promotion of ongoing learning for those already in employment.
These failures to translate investment in education during the formative years into opportunities for higher-quality work during the working lifetime contributes to income inequality by blocking the two pathways to social inclusion, education and work, according to the World Economic Forum’s Human Capital Report 2017, which is published today.
The report measures 130 countries against four key areas of human capital development; Capacity, largely determined by past investment in formal education; Deployment, the application and accumulation of skills through work; Development, the formal education of the next generation workforce and continued upskilling and reskilling of existing workers; and Know-how, the breadth and depth of specialized skills-use at work. Countries’ performance is also measured across five distinct age groups or generations: 0-14 years; 15-24 years; 25-54 years; 55-64 years; and 65 years and over.
According to the report’s Human Capital Index, 62% of human capital has now been developed globally. Only 25 nations have tapped 70% of their people’s human capital or more. With the majority of countries leveraging between 50% and 70% of their human capital, 14 countries remain below 50%.
A fundamental tenet of the report is that accumulation of skills does not end at a formal education, and the continuous application and accumulation of skills through work is part of human capital development. All too often economies already possess the required talent but fail to deploy it.
While much is often made of intergenerational inequalities when it comes to the realization of human capital, the report finds every generation faces considerable challenges when it comes to realizing individual potential. For example, while younger people are consistently better off than older generations when it comes to the initial investment in their education, their skills are not always deployed effectively and too many employers continue to look for ready-made talent. The problem of under-deployment of skills among the young also affects those coming towards the end of their working life. Meanwhile, few among those currently in employment – across all age groups –are gaining access to higher skilled work and opportunities to enhance know-how.
“The Fourth Industrial Revolution does not just disrupt employment, it creates a shortfall of newly required skills. Therefore, we are facing a global talent crisis. We need a new mind-set and a true revolution to adapt our educational systems to the education needed for the future work force,” said Klaus Schwab, Founder and Executive Chairman, World Economic Forum.
“Human capital is not a fixed concept – it can be enhanced over time, growing through use and depreciating through lack of use – across people’s lifetimes. This means we need a more proactive approach to managing the transition from education to employment and to ongoing learning and skills acquisition for today’s workforce. Otherwise, every country risks creating lost generations,” said Saadia Zahidi, Head, Education, Gender and Work, World Economic Forum.
“Skills are the fundamental unit of human capital. Knowing which skills are most resilient, most persistent, and most likely to remain relevant through technological innovation and economic change is key to successfully upskilling and reskilling workers. Using our data to arm governments and broader policy communities with a richer understanding of skills dynamics can and should fuel more nuanced and strategic investments in building human capital for the future,” said Guy Berger, LinkedIn Economist.
The Human Capital Index 2017
The top 10 is topped by smaller European countries – Norway (1), Finland (2), Switzerland (3) – as well as large economies such as the United States (4) and Germany (6). Four countries from East Asia and the Pacific region, three countries from the Eastern Europe and Central Asia region and one country from the Middle East and North Africa region are also in the index top 20.
At a regional level, the human capital development gap is smallest in North America, followed by Western Europe, Eastern Europe and Central Asia, East Asia and the Pacific, Latin America, and the Middle East and North Africa. The gap is largest in South Asia and sub-Saharan Africa.
North America is the strongest regional performer, with an average score of 73.95. The United States (4) ranks in the top 10 and Canada (14) in the top 20.
Western Europe has an overall average score of 71.10, the second highest after North America. The rankings are dominated by the Nordic countries –Norway (1), Finland (2), Denmark (5) and Sweden (8), as well as Switzerland (3) and Germany (6) –which collectively take the region’s top spots. Twelve countries have crossed the threshold of developing at least 70% of their human capital. The Netherlands (13) and Belgium (15) rank ahead of the United Kingdom (23) and France (26) to make up the mid-range of the regional league table, while three Mediterranean countries – Portugal (43), Spain (44) and Greece (48) – take the bottom ranks.
Eastern Europe and Central Asia ranks in third place globally, with an overall average score of 67.36. Three countries from the region rank in the top 20: Slovenia (9), Estonia (12) and the Russian Federation (16). The Czech Republic (22), Ukraine (24) and Lithuania (25) all score above the 70% threshold. The bottom-ranked countries in the region, Macedonia, FYR (67) and Albania (85), are held back by high unemployment and underemployment rates across all age groups.
East Asia and the Pacific region scores towards the middle of the range of the index, with an overall average of 65.77. The best-performing countries in the region, such as Singapore (11), Japan (17) and the Republic of Korea (27), are global strongholds of human capital success, while countries such as Lao PDR (84), Myanmar (89) and Cambodia (92) trail behind despite their high degree of human capital utilization across the deployment pillar. ASEAN economies such as Thailand (40), Vietnam (64), Indonesia (65) and Malaysia (33) score towards the middle range. China (34) ranks well ahead of the other BRICS nations except for the Russian Federation.
Latin America and the Caribbean scores in the lower middle range of the index, with an overall average score of 59.86. The gap between the best and worst performers in the region is smaller than for any other region. The two best-performing countries in the region are Argentina (52) and Chile (53). The region’s two largest economies, Mexico (69) and Brazil (77), rank in the middle and lower half of the index overall along with Peru (66) and Colombia (68). The bottom ranks of the region are made up of Venezuela (94) and Central American nations such as Honduras (101).
Middle East and North Africa has an overall average score of 55.91. Only one country, Israel (18), from the region makes it into the top 20. Three gulf states – the United Arab Emirates (45), Bahrain (47) and Qatar (55) – outperform the rest of the region’s Arab-speaking countries and score in the mid-range of the index overall. Turkey (75) scores at 60%. Saudi Arabia (82), the region’s largest economy, ranks ahead of Egypt (97), its most populous one. Algeria (112), Tunisia (115) and Morocco (118) make up the lower end of the rankings, ahead of Mauritania (129) and Yemen (129).
South Asia scores second lowest in the index, with an overall average score of 54.10. Sri Lanka (70) is the top performer, while Nepal (98), India (103), Bangladesh (111) and Pakistan (125) lag behind. With the exception of Sri Lanka, the rest have yet to reach the 60% threshold with regard to developing their human capital.
With an overall average score of 52.97, sub-Saharan Africa is the lowest-ranked region in the index. Rwanda (71), Ghana (72), Cameroon (73) and Mauritius (74) have developed more than 60% of their human capital. South Africa (87), the region’s second largest economy, comes towards the middle in the region. Nigeria (114) ranks in the lower midfield and Ethiopia (127) is the lowest performer, fourth from the bottom on the index overall.
The Specialization of Skills – an Analysis
A research partnership with LinkedIn sheds new light on education and skills around the globe.
Within the broader scope of expansion of higher education between generations, there has been a shift in the choices made by students on which subjects to specialize in as well as an expansion of the set of degrees on offer. Some fields of specialization, such as business administration and management see continued substantial representation by age group across all generations. Others such as economics have declined as the proportion of degrees amongst younger generations. Degrees such as computer science have been growing as a proportion of the degrees held by younger generations. Finally, degrees such as psychology have resurged as a proportion of the degrees held by the youngest cohorts, matching the popularity they once held amongst the oldest cohorts after having dipped among the middle cohorts.
Business, administration and law, social sciences, journalism and information as well as information and communication technologies (ICT) dominate the most popular specializations across all labour markets. Economies in South America are among the most likely to have a focused specialization in business, administration and law, especially in some of South America’s largest economies such as Argentina, Brazil, Chile and Colombia. On the other hand, some of the countries in which students are more likely to have pursued a specialization in arts and humanities are the United Kingdom, Ireland, Denmark, the United States, Canada, New Zealand and France. Countries that are home to large tertiary-educated talent pools specialized in engineering, manufacturing and construction include economies with high demand for petrochemical engineers, such as Qatar, Brunei Darussalam, Kuwait, the United Arab Emirates, Malaysia and Bahrain.
When it comes to Information and Communication Technologies talent, data from LinkedIn’s global membership shows that there has been a considerable expansion of this particular set of specialist skills. Yet, this boom in ICT talent is not equally distributed across countries and generations. Economies such as Sweden, Australia, the United States, Switzerland and the United Kingdom have relatively more mature ICT talent; others such as Lithuania, Brazil, Romania and Estonia have predominantly young pools of ICT talent.
While expanding education access and undertaking curricula reform are critical for ensuring that future generations are prepared for a changing labour market, the Human Capital Report 2017 emphasizes the vital nature of continuous skilling, upskilling and reskilling through the workforce. This requires employers to provide learning opportunities to their workers and see these as investments, governments to take a holistic view to broadening and deepening the skills-specialization and complexity of work across their economies, and individuals to see learning as a lifelong activity.
Coronavirus: Now a two headed monster
Coronavirus, like a two headed monster killing
people on one side the other side global economy;
The warrior leaderships of rich nations now creating a rain of trillions of dollars to drown one of the heads. Rich nation and their printing machines have just approved trillions of dollars, as this aggressive move will help each other and also less fortunate economies to safeguards global economic order as one global goal.
Most significant is the largest amount allocated to support Small Medium Businesses…
USA alone has allocated 350 billion dollars and many other countries doing similar initiatives, this largest ever, once in a lifetime boost to abandoned and struggling SME of the world may just open a bright new future to transform into pillar of superior performance and a pleasant surprise to all.
Coronavirus is still a global force to reckon while massive shortages may create havocs…uncertainty lingers, the stimulus packages will keep the morale and nations safer. As rightly mentioned by President Trump, the depression and suicides rates are major concerns.
Today, nation by nation, no other local economic power base as strong as the small medium business economy of the land, and increasingly with technology the same sectors in the unfolding future stand like very powerful pillars; a random collection of many, many millions small medium businesses around the globe, like smart entities, globally savvy, technologically driven, block-chained, AI+AR+VR, entrepreneurial centered creating local grassroots prosperity.
Difficult questions: As most of these funding offered as easy loans;if SME wish no more additional loans or create additional debts to further risk their own future; but what if they rather get smart-help, global-age upskilling and re-skilling for their enterprises or global exportability guidance and customer connectivity expertise, how far will the loans concepts work? Like receiving full y subsidized payrolls or full funded digitization to improve market size. Fully funded programs, on special upskilling and skilling grants to make the fields of SME new upgrading and learning battlefields is another option. With loans only format where will they go out and shop what levels of solutions and how will they uplift on performance and exportability? They were already stuck before, now for fears of new debt, they may remain stuck again. Leadership must explore National Mobilization of Entrepreneurialism Protocols
Simultaneous synchronization of national SME base is the novel art and science of the National Mobilization of Entrepreneurialism Protocols. Not to be confused with some MBA curriculum or export promotion agency guidelines. Nations without digital platforms on SME upskilling and reskilling beyond post Coronavirus world would look like nations without Internet in the nineties.
Two steps for Midsize Business Economy to advance on grassroots prosperity:
ONE: Identify 1000 or 1000,000 high potential small and midsize enterprises within a region or a nation, and create a national agenda to quadruple their performance on innovative excellence and exportability.
Deploy digitization of top national trade associations and chambers of commences to upgrade to world-class digital platforms so that their entire membership can skate nationally and globally showcasing their goods and services. This is a global age revolution based on entrepreneurial mobilization… study Pentiana Project
TWO: Upskilling, reskilling million small medium businesses and women entrepreneurs across nation:How do you place 10,000 or 1,000,000 SME owners on digital platforms to boost exports and innovative excellence? Why such ideas are not major funding dependent but mobilization hungry and execution starved? What special skills are required to uplift midsize business economy in 2020, how to transform? How did Alibaba generated USD$39 Billion within 24 hours on 11–11–2019, how to optimize? How Round-tables and Cabinet Level discussions are a good starting point?
Rest is easy…
Anaconda of Incompetency at the Masquerade Ball of Coronavirus
Nations of the world, enthralled in their own custom-tailored masks at the masquerade-ball of Coronavirus struggling to calm restless citizenry already wrapped in colorful flags chanting hymns of survival and populism. What’s not musical is the outdated lips-service, watery promises, putty economical ideas all rejected for composting.
The Masquerade Ball of Coronavirus: advancements on human endeavor neglected, now liberated harshly by Coronavirus; in simultaneous synchronization across the 200 nations a new world-order of new business hierarchy appears, where critically thinking isolated for higher productivity, performance and profitability measured on new digital platforms, remote working, replacing old corporate bureaucracies and global dominance of downtown cores.
No, please, do not blame the national leaderships; expectancy on this special expertise was never there, caught in their own convictions, political agenda and Teleprompter guidance they are doing their best. The political rhetoric is numbing, the ignorance of science and lack of skills to understand managing restless citizenry is unforgiving. The time to face the music has arrived. The time to change the economic values measurement systems has arrived.
Unfortunately, neither required are the photo-ops; nor the regular G50 or G100 lalalands but surely a G200 –a 200 nations gathering, 24-Hour Marathons of collaborations on humanity, global mobilization of Coronavirus medical facts based deployments, interconnected conference via latest circuitry streamed to the world now being critically missed since last 100 days. Political posturing precluded such demonstration of special global level leadership; the collaborative synthesizim to bring all diversity and tolerance under a global umbrella… the bonfires of crumbled egos are now on slow-burn displays. Chaos increases…fears surmounts, failures becoming visible. Credit goes to selected leadership around the world and their medical teams for leading the charge under most difficult and unprepared circumstances.
Nations witnessed extensive overseas mobilizations of armies over decades are now in panic figuring out national mobilization to combat internal crisis. Sadly, if you end up, outside your hospital lying of pavement outside somewhere in the parking lots without help and equipment, no one will help you, the echo of the promises and lingering trials and errors on the down streaming of absolute shut-down and civil order during last 100 days are living proof of incompetency.
Needed is a voice, trusted by nation; professionalism on science, respected by global medical community and national shut down except crucial services. Most importantly, needed a national mobilization of brain-power of working citizenry to optimize from their own quarantined habitats and apply maximum innovative ideas on existing resources via remote working to create a parallel working economy, where connectivity and dialogue will bring normalcy to our national and global structure of continuity.
Wars of Silence:
In a world where economic dysfunctionalities already visible from space, muffled and gagged, the total absence of real truth-seeking authoritative national debates on hardcore issues of small and midsize business economy is where the silent anaconda of incompetency resides. All over the world, silence on these internal economic development issues are now becoming proof of incompetency and further creating increased restlessness. Suddenly, liberated, the Coronavirus has brought the world together, slowly, the silent majority of connected-billions developing a new mindshare…
In Simultaneous Synchronizations a Global Metamorphosis Challenges Corporate Thinking…
Workers of the world; majority with low wages, cannot afford to wake up in hours of darkness, depart away from the huddles of loved ones, commuting till ending up in crowded undergrounds, small elevators, climbing floors to find a lonesome desk to stay strapped till the bell rings at the end of day and drag themselves back to far away home to start the process allover next day… still worshipped today, this work model died decade ago.
Office work declared as cruelty to mankind; eliminate from the global enterprise model and replace by a smart phone backed by smart LIVE face-to-face enterprise systems so that the liberated worker force can create and produce far more via inter-linked global age where smart work is ‘invisible work’ for minds alone processed in their own free moving spaces. A very small percentage of workers may still be required in special places in special settings or so called offices, but too eliminated like manpower lifting millions boxes now done by robotized warehouses.
Manpower concepts declared an outdated optimization model, defined over millennia, term ‘manpower’ needs new definitions, most work touched by manpower now replaced by robotization, now needs new understanding of replacements and compensations.
Human-Power; declared as self-discovered superior state of mind for critical thinkers and complex problem solvers frontiers, identified as masters of robots and automation, while denier of change declared as slaves of robots, mandatory national upskilling and reskilling and national mobilization of entrepreneurial protocols will fix such issues. Without bold debates the muted progress will further decline.
Small Medium Business Economy; all over the world, the SME of the future is a very smart entity, globally savvy, technologically driven, block-chained, AI+AR+VR, entrepreneurial center creating local grassroots prosperity. Nation by nation, this largest economic block will overtake the national productivity performance and assist global financial crisis. Critically needed, the digital platforms on National Mobilization of Entrepreneurialism Protocols offering free upskilling, reskilling and uplifting hidden national talents, especially women-owned businesses, liberated from bureaucracy and traditional anti-SME funding banking systems.
Abandoned art of value creation; declared as mandatory certification requirements to measure economic progress, replacing adding fake value-manipulations totaled as progress. The real grassroots prosperity advancements are principled in real value creation and not value-manipulations.
Global charter of rights; declared as affirmation to global rules of mankind and civility, needs massive revision on civil liberties, human rights and social justice to allow societies to become highly diverse and tolerant and abide national rules. Out we came out of caves not to re-enter.
Education; declared as top quality, free from top to bottom, nationalized and heavily public funded, top pay for teachers and with very real entrepreneurial thinking. Universities recall degrees with apologies, payout refunds with time and opportunities lost.
Alvin Toffler’s concepts of ‘electronic cottage’ spoke volumes on such progress of enterprise by replacing offices with hyper connected devices with staff in highly comfortable leisure zones or common-working-spaces as rainforest themes, as mental-comforting-habitats over four-walled- desk-chair-contraptions. This was eighties. Today, climate change issues demand elimination of billions driving to work, often in most energy dependent and uncomfortable situations while all the latest freely available interconnectivity and face to live actions because the ‘managerial’ concept always seeing an empty desk still considered ‘body missing’ from work, where paper shuffling and rubber stamping mentality have not yet crossed over the idea of hiring of ‘minds’ and not ‘bodies’ and allow 99% mundane work be done via AI. Most neglected all over the world, the upskilling and reskilling of workforce to tackle global age, last three decades leadership assumed YouTube and Universities were doing this, they were unable to decipher the regression. Coronavirus may create such simultaneous remote working global test for millions of enterprises of the world and change office-working forever.
Futurism is workless; as artificially driven technologies cunningly steal all office work, come next 1000 days the global economic chaos may force a march of billion crowding on boulevards of the world. Workless, jobless, and officeless, tired they march…never ever in the history of mankind assembled such number of once mighty, highly skilled, educated and experienced subjected to replacements by their own technological advances.
Mona Lisa Smile: Equally, no nation is safe from the onslaught of Mona Lisa smile gender-fluid robots entering our gender free work spaces and asking us politely, at least the first time, to leave our offices and never return back. Second time their asking labeled as robotic misbehavior.
The world is changing very fast, this is no longer a cliché, and it’s now an explicit warning.
Mirrors on the walls: when fixing obesity demands a life-size mirror, the national citizenry must also find a large enough nation-size mirror. When grassroots prosperity in chaos and small medium business economy crushed without national mobilization of entrepreneurialism on digital platforms on innovative excellence and exportability, nations are simply doomed.
National gatekeepers of midsize business economic agenda must demonstrate global age skills to combat meltdown; Abundances and neglects will not just stir up the big drunk elephant of fake-economy in the china shop but it will directly force anaconda of incompetence to strangle further silence and quietly create demand for big budgets for riot gears. A masquerade ball of populism will start the orchestra.
Is this the worst of times; or the most opportune of times?
That lonesome crave of flying; the caterpillar under pretence of deep sleep unlearns crawling and relearns flying, breaking chrysalis spreads colorful wings and fly out in the new world. The Coronavirus is doing its job, a test of leadership nation by nation, in the short and long run the truth, diversity and tolerance will win, choose wisely and plan precisely the coming 1000 days.
Isolate and stay in safe spaces… unpredictable times ahead
Pakistan’s appeal for national-debt write-off
In an interview with Associated Press, our prime minister called upon world community to write off debt burden of poor countries so as to help them cope with COVID19 epidemic (Dawn March 17, 2010).
The total debt liabilities of the country amount to Rs19, 299.2 billion (as of March 2015). Every Pakistani now owes a debt of about Rs101, 338 as compared with Rs.90, 772 in 2013, Rs80, 894 in 2012 and Rs37, 170 in early 2008.The debt-to-gross domestic product ratio stands at 66.4 percent, in which foreign debt is Rs. 6.4 trillion and domestic debt is Rs.12 trillion.
In dollar terms, Pakistan’s external debt soared to 95097 USD Million in the second quarter of 2018 from 91761 USD Million in the first quarter of 2018.That’s an all-time high, and well above the average of 54065.23 USD Million for the period 2002-2018. Pakistan recorded a Current Account deficit of 8.20% of its Gross Domestic Product in 2018. That’s an all-time high and well above the -2.60% average for the period 1980-2018.
Pakistan’s debt burden has a political tinge. For joining anti-Soviet-Union alliances (South-East Asian Treaty Organisation and Central Treaty Organisation), the USA rewarded Pakistan by showering grants on Pakistan. The grants evaporated into streams of low-interest loan which ballooned as Pakistan complied with forced devaluations or adopted floating exchange rate.
Soon, the donors forgot Pakistan’s contribution to break-up of the `Soviet Union’. They used coalition support funds and our debt-servicing liability as `do more’ mantra levers.
Successive Pakistan governments treated loans as freebies. They never abided by revised Fiscal Responsibility and Debt Limitation Act. Nor did our State Bank warn them about the dangerous situation.
No formal application for write-off: What a pity! Whenever International Monetary Fund’s delegations visit, Pakistan’s representatives keep mum about politically-motivated odious nature of our debt burden. They lack nerve to tell them point-blank Pakistan’s non-liability to service politically-stringed debts. They government’s dilemma in Pakistan is that defence and anti-terrorism outlays plus debt-service charges leave little in national kitty for welfare. Solution lies in debt forgiveness by donors (James K. Boyce and Madakene O’Donnell (eds.), Peace and the Public Purse.2008. New Delhi. Viva Books, p. 251).
Benefits of Write-Off: Debt forgiveness (or relief) helps stabilise weak democracies, though corrupt, despotic and incompetent. Research shows that debt relief promotes economic growth and boosts foreign investment. Sachs (1989) inferred that debt service costs discourage domestic and foreign investment. Kanbur (2000), also, concluded that debt is a drag on private investment.
In fact, economists have questioned justification of paying debts given to prop up a client regime congenial to a `master’ country. They hold that a nation is not obliged to pay such `odious debts’ (a personal liability) showered upon a praetorian individual (p. 252 ibid.). Legally also, any liability financial or quasi-nonfinancial, contracted under duress, is null and void.
Apparently, all Pakistani debts are odious as they were thrust upon praetorian regimes to bring them within anti-Communist (SEATO, SEATO) or anti-`terrorist’ fold. To avoid embarrassing unilateral refusal of a country to repay odious debts, UN should declare which portion of debts is `odious’ (Jayachandaran and Kremer, 2004). Alternatively, the USA should itself write off our `bad’ debts.
Sovereignty compromised: People barter away some of their naturally-derived freedom with sovereign ruler to get security and welfare (Thomas Hobbes, John Locke et. al.). When a despot fails to deliver the goods, the contract stands broken, and the people have a right to overthrow him. Thomas Jefferson (North American colonies) enshrined this social contract in the 1776 Declaration of Independence: ` when a long train of Abuses and usurpations pursuing invariably the same Object evinces a Design to reduce them under absolute Despotism it is their Right, it is their Duty to throw off such Government and to provide new Guards for their Security’.
But, Pakistani people are too passive to overthrow their despotic unpopular governments.
The successive governments did nothing by way of welfare for the people. They could not even evolve a universal healthcare system akin to Thailand’s (2002).
The government’s dilemma in Pakistan is that defence and anti-terrorism outlays (26 per cent) plus debt-service charges leave little in national kitty for welfare.
A discussion was held at a seminar jointly organised by the Institute for Social and Economic Justice (ISEJ) and the Islamic Relief Pakistan under the campaign ‘Breaking the Chains of Debt’, at Forman Christian College. The crux of discussion was 47 per cent of whatever the government generates in revenue goes to pay off debt against 44 per cent in the previous year. Ideally, this ratio should be less than 30% to allocate more resources to social and poverty-related expenditures.
Speaking on the occasion, ISEJ Executive Director Abdul Khaliq said the debt situation was alarming and the government must review its reckless borrowing behaviour. We must demand an audit of the public debt,” he said. “All new loan contracts should be subjected to a debate in parliament and its approval.”
The government must stop reckless international borrowing and minimise reliance on foreign debt in the future and take measures to get the illegitimate loans cancelled, he said.
Khaliq emphasised the need for synergising efforts for a debt-free Pakistan and making the people of Pakistan the real drivers of the economy.
Three time prime minister Nawaz Sharif during his election campaign made tall claims that on assuming power he will get rid of the ‘cancer of debts’ and promised to break the ‘begging bowl’, however, there is little evidence of measures towards freedom from debt, said political economist Dr Qais Aslam.
The present Pakistan Tehrik-e-Insaf government proved no different from its predecessors and started knocking on the doors of international lenders even more vigorously, he added.
In a country where 60% of the population lives below the poverty line and 58% faces food insecurity, this additional burden means more miseries for the generations to come.
Speakers further said the impact of mounting debt burden on the people is horrific. Fiscal space for social spending has drastically squeezed. Pakistan spends just 2 to 2.6% of its Gross Domestic Product on education and health respectively, making it the lowest in South Asia.
International Monetary Fund’s assessment (Express TribuneMarch 16, 2018):
In its post-programme monitoring report, the IMF assessed risks to Pakistan’s economic outlook had increased. Despite changing goalposts twice, Pakistan’s public debt remained higher than the limit prescribed in the revised Fiscal Responsibility and Debt Limitation Act.
The policy of building foreign currency reserves through expensive loans and ignoring the export performance haunted the policymakers.
The IMF said the elevated current account deficit and rising external debt servicing, in part driven by China-Pakistan Economic Corridor (CPEC)-related outflows, were expected to lead to higher external financing needs.
External financing would surge to around $27 billion by the end of fiscal year 2018-19 (FY19) and would go up to $45 billion by FY23.
At that time, Pakistan’s external financing needs will be equal to 10% of the national output, which is a dangerous level. “Risks to public debt sustainability have increased since the completion of the EFF (Extended Fund Facility) programme. Public and publicly-guaranteed debt is expected to remain elevated at 68% of GDP by FY23.” Gross fiscal financing needs will likely exceed 30% of GDP from 2018-19 onwards, in part reflecting increased debt service obligations.
However, the more alarming part is the growing challenges to arranging foreign loans. It said Pakistan had so far remained successful in contracting external borrowing that softened the impact of rising external imbalances on foreign exchange reserves.
The IMF’s projections showed a bleak path for the next five years. Public and publicly-guaranteed debt is projected to remain close to 70% of GDP by 2023 under the baseline scenario.
In the absence of strong consolidation measures, the fiscal deficit is expected to remain close to 6% of GDP in the medium term, resulting in elevated debt levels.
Adverse shocks, notably to economic growth and the primary balance, could lead to public debt ratios rising well above 70%, said the IMF.
Contingent liabilities from restructuring of loss-making public sector enterprises represent additional fiscal risks. High gross financing needs may also pose potential rollover risks.
The IMF said high levels of public debt and gross financing needs presented significant fiscal risks and needed to be addressed in a timely fashion through fiscal tightening to improve debt sustainability.
Financial sovereignty threatened: Some people question is Pakistan really a sovereign state? The question is based on premise that government has ceded control of the economy to foreign entities. Both the finance minister and the governor of the State Bank of Pakistan are career officers of respectively the World Bank and the International Monetary Fund. Is the primary loyalty of these officers to their Washington-based institutions or to their country of origin? And, should we be outsourcing existential financial decisions to people with possibly divided loyalty?
IMF’s changed role: The IMF and the World Bank are products of the Bretton Woods conference of 1944. Both organizations made good sense in the tattered world economy of the post-War period. The World Bank set about financing the rebuilding of Europe; while the primary purpose of the IMF was to promote international trade, which had collapsed during the war. The IMF’s role was to assist member nations to maintain stable exchange rates by providing short-term credit to support their currencies.
However, the `dinosaurs’ changed their roles. Over time fixed exchange rates gave way to floating rates, multiplying debt burden of recipients manifold. Markets replaced governments as the primary arbiters of the value of national currencies.
The arrangement works as follows: A poor country, due generally to mismanagement and corruption, finds itself in dire need of hard currency. Commercial lenders are unwilling to commit their funds without adequate safeguards. Enter the IMF. It offers to lend some of its own money, provided that the host government agrees to a set of economic ‘reforms’. These understandably seek to enhance the borrower’s ability to repay the money loaned. When a deal is struck, the IMF disburses its own funds. At the same time commercial lenders, now reassured that the borrower can repay, step in with additional funds.
Typically, the IMF’s own funds constitute only a small proportion of the borrower’s total debt. Commercial lenders provide the rest. Yet the IMF’s participation is crucial. If it does not ‘certify’ a country by its participation then that country effectively gets cut off from all other sources of credit.
The question which recipients need to brood over is: Does the IMF serve their national interests? The IMF has a single overriding objective. This is to enhance the borrower’s ability to service its debts. It does not care a fig for recipients’ policies about poverty alleviation, price stability, employment, universal access to health care and education, and affordable rates for basic services.
Hypothetical example of debt black hole: Our external debt is $100 billion. Let’s assume that the average applicable yearly interest rate is five percent and that we decide to pay it back in equal annual installments over a period of 20 years. We would need to pay annual installments of $8 billion per year for a total payback over the 20 year period of $160 billion. Of which $60 billion would be interest and the balance repayment of principal.
We run a trade deficit of $20 billion a year. If we had a trade surplus we could theoretically have had the ability to pay back some of our debt. But, with shattered industry, teetered infrastructure, and COVID19 hangover, we can’t. So the only way to find the $8 billion per year to pay back our existing loans is to take new loans. We thus fall in the financial equivalent of a black hole.
Light at end of the `Hole’: While light cannot escape a black hole, we can extricate ourselves from this crisis. Pakistan needs to make the most of its strategic advantages. If we did not get out loans written off as quid pro quo for Soviet collapse in Afghanistan, we should better negotiate US exit now. We should have an answer if the US asks, by way of quid pro quo, for putting permissive action links on our nuclear bombs. If Pakistanis to be denuclearized than its binary India too should be.
Pakistan government should take prime minister lead further. It should hold negotiations with lenders that are commercial banks and the international finance agencies. We should aim at repudiation of about 50 percent of debt. This should be in addition to interest rate waivers, revisions and extended terms.
Simultaneously, Pakistan should dust off burden of debt models in textbooks. Debts should be so utilised as to be able to pay off interest and principal over agreed time span.
Bad debts: Pakistani debts qualify for write-off as bad debts. Why should poor Pakistanis, lacking basic needs, pay them?
World Bank President David Malpass (Express Tribune February 12, 2020) portrayed a bleak situation of loaning policies worldwide. Like a pot calling kettle black, he chided other development banks for lending too quickly to heavily indebted countries, saying some were helping worsen already-challenging debt situations. Addressing a World Bank-International Monetary Fund (IMF) debt forum, he said Asian Development Bank, the African Development Bank and the European Bank for Reconstruction and Development were contributing to debt problems.
He said the ADB was “pushing billions of dollars” into a fiscally challenging situation in Pakistan. African Development Bank was doing the same in Nigeria and South
Africa. Pakistan was unlikely to meet debt reduction targets. The Manila-based development lender in December approved $1.3 billion in loans for Pakistan, including $1 billion for immediate budget support to shore up the countries
Public finances and $300 million to help reform the country’s energy sector.
The loans came as the country is struggling with billions of dollars in debt to China
from the Belt and Road infrastructure projects, which pushed Pakistan to turn to the IMF for a $6-billion loan programme in 2019.
Malpass said there needed to be more coordination among international financial institutions to coordinate lending and maintain high standards of transparency. “And so we have a very real problem of the IFIs themselves adding to the debt burden and there’s pressure then I think on the IMF to sort through it and look at the best interest for the country,” he stated.
Inference: If Pakistan wants to get its loans written off, it should do more than indulge in rhetoric. `Negotiation’ is a subject taught in all universities as a business course. Pakistan should learn to argue its case and decipher donors’ BATNA (best alternative to negotiated agreement
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