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Pakistan: ensnared in debt trap

By Dr. Ikramul Haq[*]

Pakistan, caught in a deadly debt trap, is struggling hard to get rid of external loans of 35 billion US$. There is a little hope to come out of this crisis or to stop looking towards IMF, World Bank, Paris Club, London Club and ADB in a near future. There are no positive signs yet for overcoming the ever-increasing fiscal deficit, the worsening balance of payments and unfavorable trade imbalances.

All the governments in Pakistan ruthlessly misutilized foreign lending and never tried to live within means. The present economic crisis is a logical outcome of the wrongdoings of the last many decades. The Government of General Pervaiz Musharaf, being fully cognizant of this reality, has constituted Debt Reduction & Management Committee (DRMC) to evolve a strategy to come out of the debt trap. Will this strategy work? The answer is not a simple proposition. There are many ifs and buts to determine the viability of any such strategy considering the very difficult position in which Pakistan has been caught. The dilemma is obvious; the deadly debt trap has international dimensions. It is in fact a part of the agenda of foreign donors to impose New World Order.

The debt trap is a multifaceted phenomenon having economic, political and social dimensions. After the nuclear testing, the international donors, on the instructions of the masters, started tightening their noose around Pakistan’s neck. The negative effects of conditionalities imposed by them are now becoming more and more visible. In the frenzy of collecting more and more taxes (through oppressive means), the rulers of Pakistan are making the lives of common people miserable. The traders and industrialists are not directly hit by such harsh tax measures as they can easily pass on the burden of these taxes to consumers but they are certainly feeling insecure as general chaotic conditions have a visible dampening effect on their businesses.

The situation is indeed very alarming. Pakistan has suffered a lot; first as a victim of drug trade and now as a helpless prey to the debt trap. It’s journey from narcocracy to economic enslavement presents a classic example of a State which fell victim to its own policies of self-annihilation. It is a matter of record now that during the 11-year rule of General Ziaul Haq, corruption and drug money destroyed the entire fabric of Pakistani society. The State allowed the drug money to flourish and that in turn corrupted the administrative, legal and political institutions and crippled the economy. This legacy of Ziaul Haq was followed by his successors though they posed to be the champions of democracy(sic).

Today’s Pakistan represents a State where a trio of corrupt civil-military bureaucrats, amoral politicians and profit-hungry businessmen is very affluent, but the Government is on the brink of bankruptcy. This state of affairs is the direct outcome of State’s policies that allowed a free hand to forces of loot, corruption and terrorism. No other State in the world has undergone such a horrible experience. A number of studies conducted by independent researchers reveal that narcocracy has made Pakistan a State subservient to forces of terrorism. Pakistan’s transition from a ‘Kingdom of Heroin’ to “Bankrupt Economy” shows how certain forces managed to push this nuclear state to a position of extreme helplessness.

Clearly, Pakistani rulers have destroyed the State through corruption and incompetence. Unfortunately IMF and World Bank employed Pakistani economists were defending and serving them, instead of advising the concerned quarters to enforce financial discipline and better financial management.

In addition to external debt of 40 billion US$, the government had borrowed Rs. 2000 billion from the Pakistanis? There has been a lot of hue and cry about the foreign debt but the official economists do not utter a single word about internal indebtedness. Some people are suggesting for default in paying back. They do not realize that IMF or other international lenders linking London or Paris clubs are not helpless, they know how to squeeze it out from us. There are certain leaders who keep on propagating the higher moral values but when matter comes to paying of debts they declare it haram(forbidden). Is this not a self-contradiction? Islam teaches fulfillment of agreements and covenants under all circumstances. Are they advising the government against their own people from whom the State has borrowed Rs. 2000 billion? Are they justifying the broad daylight robbery of 11 billion US $ which the State seized on the day it proudly detonated a nuclear device. The heads of all religious parties are full of praise for achieving nuclear capability but when matter comes to paying off the liabilities of the people from whose hard earned this feat was achieved they advocate for non-payment. This is the height of hypocrisy and against the basic teachings of Islam.

After December 2000, the annual debt servicing will be around US $4.6 billion, while the current account deficit is likely to be in the range of US $1.7 billion to $2 billion. Financing a total obligation of $6.3 billion from internally generated funds is a highly unlikely scenario. Thus further external funding is inevitable for economic survival in the near future. The tall claims that in three years’ time Pakistan will pay off the entire external debt is nothing but eyewash. The government’s policy of implanting IMF proposed reforms is evident of continuous dependence on foreign assistance.

The long-term external debt scenario has never been planned in the past, resulting in the current debt mess. Looking at government’s privatization plan, it is quite clear that government is working with a three-year time frame on the debt front. Pakistan’s total medium-term debt stands at $4.43 billion, while the expected proceeds from two-year privatization plan are estimated at $4 billion. The debt servicing details clearly suggest that it is the short and medium-term external loans, which compound the government woes. A strategy to retire the medium-term foreign debt through privatization proceeds cannot be termed over optimistic, as the medium-term loan amount is not expected to rise beyond $4.43 billion due to expected rescheduling of foreign debt along with an IMF Stand-by Arrangement.

The problems in Pakistani economy can be summarized in one word that is ‘instability’. Even the military regime, just managed to secure Rs. 10.3 billion in Tax Amnesty Scheme 2000. The real tax potential of undeclared wealth in Pakistan is between Rs.700-1000 billion, according to very conservative estimates. The successive governments have utterly failed to convince the Pakistani people for paying the taxes due from them. The common argument against paying taxes is that money so collected is spent for wasteful purposes and on unprecedented benefits enjoyed by high placed civil-military bureaucrats and corrupt politicians. In this scenario, the tax machinery is minting money by harassing the public in the name of army rule. This is the first time in the history of Pakistan that a military take-over has become a tool in the hands of tax bureaucrats for exploiting the general masses for self-interest. The small businesses have been asked to pay minimum tax of 0.5% on their turnover irrespective whether they earn taxable income or not. The larger business houses and big industrialists have been threatened through the institution of National Accountability Bureau (NAB). The result is that everybody is moving capital out of Pakistan and foreign direct investment has nose-dived.

On the one hand we are destroying the available capital, industry and human resource and on the other for economic growth we have heavy and persistent reliance on external loans and credits without realizing that external loans on soft terms are now becoming more and more scarce. The International Monetary Fund, (IMF) is nowadays imposing tougher and even contradictory conditionalities.

It is an undisputed fact that IMF conditionalities have aggravated the inequalities of income and wealth in Pakistan and resulted in more unemployment. The IMF conditionalities have caused more harm to us than doing anything real good. It is therefore, painful to note that every government in Pakistan continues to take loans by accepting and complying harsh IMF conditionalities, some of which appear to have been designed to fulfill the hidden agenda of the imperialistic powers under the banner of ‘New World Order’. The rationale of seeking more and more debt for curing the evils caused by the mounting debt itself is simply beyond comprehension.

The concept of ‘New World Order’ has been propagated by the United States after it emerged as the sole super power at the end of the cold-war era. The slogans of globalisation, liberalization, and privatization are being raised for ensuring “peace, prosperity and harmony” on the globe. The fact, however, remains that the real agenda is to strengthen the hegemony on developing and least developed countries (LDCs). It is, in fact, a disguised form of ‘Capitalism and Imperialism’ that has now emerged in the garb of attractive slogans. The IMF and World Bank are now being widely criticized not only by the Third-world but also by some western economists, reformists, intellectuals and social activists. There have been mass rallies in Seattle and Washington DC in recent past to express dismay over the policies of international financial hegemony. A former US Secretary of state, Henry Kessinger observed:

“The IMF must not drive the economic crises into a political crises lest it produce nationalist ideological reaction against the very global market system it is seeking to defend.”

The implementation of IMF’s prescriptions will make Pakistan a crippled State. The nuclear capability can only be meaningful if we have economic independence as well. Pakistani policymakers, while implementing the IMF’s prescriptions, must keep in mind the following observations of Joseph Stiglitz, who resigned from the position of chief economist, World Bank some time ago to protest against the policies of the IMF:

 ’The contents of the prescriptions to overcome the 1997 Asian Crisis sent shudders down my spine’.

Pakistan served as an experimental ground in the hands of foreign donors to see how effective their strategy can be in enslaving the Third World countries. Their experiment has produced positive results and now they are applying the same tactics in India. Pakistan was first made a victim of narco-money to destroy its social and economic fabric. Once that was achieved there was no difficulty to make it to easily succumb to the objectives of international donors. A powerful nuclear-capable State is caught in a deadly debt trap. The debt trap, in fact, is a symptomatic expression of economic enslavement. This is neo-colonialism in its naked and most brutal form.

[*] The writer has conducted in-depth research on narco-politics. He specialises in international tax, press, intellectual property and constitutional laws. He served for 12 years as Deputy Commissioner of Income Tax. He has written many books on various aspects of Pakistani tax laws. His internationally acclaimed book Pakistan: From hash to heroin depicts the comprehensive picture of conversion of Pakistan into Kingdom of Heroin. The sequel Pakistan: From Drug-trap to Debt-trap in under publication.

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