Pakistan: Is it in Midst of Debt Trap?

Pakistan is a country with a population of 210 million, 6th largest country by population, 23rd largest in term of Purchasing Power Parity (PPP), and 40th largest in terms of nominal gross domestic product. Rich in natural resources, blessed with an excellent climate, suitable for agriculture. Pakistan has a youth workforce of around 140 million under the age of 40 years; it has a unique geo-strategic location, possessing the high potential for rapid development.

Unfortunately, corruption, poor governance, nepotism, and geopolitics have made Pakistan so miserable that we have to borrow money to pay back loans. The nation is facing debt of around 100 billion US Dollars and a severe shortage of foreign exchange.  The major source of earning foreign exchange in Pakistan was Export and Foreign remittances; unfortunately, both have declined in the last few years. The situation may convert into crisis when the loan installment is due to pay back and no foreign exchange available.

Prior to 1990, Pakistan utilized IMF loans temporarily to bridge minor balance of payments gaps. And it was all right. However, the abolition of Foreign Exchange Controls by the Pakistan Government in 1991 was a wrong-policy move and was the beginning of the crisis which we are faced with till today. The ruling elite wanted to be free to convert/launder their ill-gotten wealth in Rupees into Dollars and send it abroad. This same trick was employed by successive governments one after other.  During 2013 -18 went totally mad using the old trick and kept on borrowing Dollars, again and again, to keep the Rupee at around Rs100 so that they could convert their mega commissions from mega projects into Dollars and send it abroad. At the same time, they were accumulating external debt by unrestrained resort to Sovereign Guarantees on mega projects and borrowing repeatedly from the IMF. The external debt kept mounting to unsustainable levels and reached over $100 billion. Chinese loan on CPEC projects is around 6 billion only, which constitute less than 10% of total loan. The major part of foreign loan is from IMF, World Bank, Paris Club and western donors.

IMF is full of experts and no doubt on their intellectuality and scholarly capacities. The question is why did the IMF keep on lending without assessing the payback capacity of Pakistan? Why did not impose the same kind of severe conditionality as they are doing now? Why not the IMF did improved governance in Pakistan? Why did not IMF asked for stopping corruption? Etc many such questions.

The answer is simple. Our adversaries wanted to lead us into a Debt Trap and the NRO which they forced on Gen Musharraf as well as the crisis which was engineered to oust him, were part of the Grand Strategy to bring Pakistan down to its knees unable to protect its vital national security interests – undermine the Pakistan Armed Forces, its nuclear and conventional deterrence and its strategic relationship with China. They want us to remain economically weak and dependent.

Especially, the current program under consideration – 22nd program, is we planned the trap. It is obvious that an amount of US Dollars 6 Billion over a period of 39 months, on an average less than US Dollars 2 billion a year, is not less than a joke. Will it help Pakistan at all? While Pakistan has sought enough amount from friendly countries like Saudi Arabia, China, and the UAE. If they’re still a small gap, can be sourced from any other friendly country. The conditions placed by the IMF are so heartening that the people of Pakistan feel ashamed. If the experience of the previous 21 programs was not satisfactory, how to expect the new one, 22nd will solve the real issues of Pakistan?

In a matter of fact, borrowing money is bad, and borrowing money to pay back the loan is worst. It means, the system is not delivering or improving the economy that is why there is a need to borrow more. We cannot keep this habit for a long time. We must change this habit and should change now, the sooner the better.

We need to focus on generating wealth. The best source of earning foreign exchange is by increasing export. Pakistan does have a huge potential of enhancing exports, but the bottlenecks are required to be resolved by the Government. It is a policy issue and needs an understanding of the issue. It may not cost the Government any huge funds, just reforms to facilitate exports are required by policy incentives. The second major source of earning of foreign exchange was Foreign remittances, which were witnessed a sharp decline over a period of a few years. Overseas Pakistanis may be facilitated to transfer their funds into Pakistan in a friendlier manner. Legal complications may be removed and procedures may be formed more convenient.

IMF may force the government to collect more tax, which will cause more difficulties for common citizens. The Business community may escape the country, but salaried persons will be victimized. Inflation and price hike in the domestic market may create unrest and chaos in the country.

We must avoid debt trap and think wisely, smartly and protect our national interests.

Prof. Engr. Zamir Ahmed Awan
Prof. Engr. Zamir Ahmed Awan
Prof. Engr. Zamir Ahmed Awan, Sinologist (ex-Diplomat), Non-Resident Fellow of CCG (Center for China and Globalization), National University of Sciences and Technology (NUST), Islamabad, Pakistan.