Pakistan’s future depends on sound planning and well-thought-out development which must be adhered to by all governments.
ByMuhammad Hanif | August 2022
In Pakistan, the ongoing inflation is due to its heavy external debt of 128 billion US dollars (USD) up to December 2021 as per CEIC, with no capacity to pay back about 12 to 14 billion USD loan instalments per year, as Pakistan does not have sufficient foreign exchange reserves. And, to pay back loans, Pakistan has reached a stage, where it has to get further loans from the IMF and other foreign donors. Now, let us have a look at the position of Pakistan’s total foreign borrowing accumulated in the last 49 years (1972 to 2021), after the separation of its eastern wing.
The PPP led governments governed the country for 20 years for four terms, with Zulfiqar Ali Bhutto, Benazir Bhutto, and others as the Prime Ministers (PMs) and got a total loan of 32 billion USD. Gen Zia and Gen. Musharraf led governments ruled the country for 18 years and got a total loan of 17 billion USD. The PML (N) /Nawaz led governments ruled the country for 11 years for three terms, with Nawaz Sharif being the PM three times, and got a total loan of 44 billion USD, thus totalling the loan accumulated by these three types of governments to 93 billion USD up to May 2018.
When the Imran Khan-led PTI won the elections and formed the government in August 2018, it inherited an accumulated foreign loan of 93 billion US dollars. In May 2018, as per the Pakistan Bureau of Statistics, when PML (N) left office, Pakistan’s foreign exchange reserves in the State Bank were only 10 billion US dollars, imports were 56 billion US dollars, and exports were just 18 billion USD and a negative balance of trade of 38 billion US dollars. The budget deficit was 8.8 percent of the GDP.
In light of this situation, to pay back loan instalments of outstanding 93 billion USD loan at the rate of 11 billion USD per year, and to run the country, in August 2018, the Imran government also resorted to borrowing from the IMF and friendly countries. Due to the shaky economic situation at that time, and lengthy negotiations with the IMF, the market panicked and the Pakistani rupee was devalued while inflation also started rising, which was also later also rose due to Corona virus and Russia-Ukraine war.
The Imran Khan government got about 35 billion USD external debt in its 3 and a half year rule and paid about 33 billion USD loan instalments in three years. The total loans of Pakistan swelled from 93 billion USD to 128 billion USD in December 2021. This addition of 35 billion USD loan by the Imran government was therefore the result of already accumulated loan of 93 billion USD, out of which 76 billion USD loan had been borrowed by the PML (N) and the PPP governments and 17 billion USD by the military-led governments.
Then in April 2022, when the no-confidence motion succeeded against the PTI government and the PDM led by Shahbaz Sharif formed the government, the position of the economy was confirmed by the Survey of Pakistan Report 2021. The PTI government had achieved 6 percent annual growth, the total annual exports were 28 billion USD, foreign exchange reserves by December 2021, were 17 billion USD, and annual tax collection was equal to Rs 6100 billion. This state of economy indicated that Shaukat Tareen, the previous Finance Minister, was handling the economy well, as he was also keeping the prices under control by resisting the IMF demands.
Again, to pay back loan instalments and run government affairs, the Shahbaz-led PDM government is also trying to get loans from the IMF and donor countries. To implement IMF dictates, the PDM government has increased the prices of fuel, electricity and food items three times more than before, and levied heavy taxes, thus punishing the common people for all political parties’ fault of gathering 128 billion USD loans, out of which the PPP and PML (N) had taken maximum loan of 76 billion US dollars.
Although all governments in the world get loan from the IMF and other donor agencies/countries, for development purposes, the major issue is that the loans should be used on feasible and profit earning projects rather than spending lavishly on utility projects and eating away money by the corrupt elements of the governments.
Although all governments in the world get loan from the IMF and other donor agencies/countries, for development purposes, the major issue is that the loans should be used on feasible and profit earning projects rather than spending lavishly on utility projects and eating away money by the corrupt elements of the governments. The feasible projects after completion help produce revenues and spending honestly on agriculture and industry increases production, reduces imports and increases exports, which can boost a country’s foreign exchange reserves. This helps a country to pay back loans, and strengthen the economy and defence and people’s welfare can be looked after.
In Pakistan, all the governments have failed to spend loans judiciously, controlling corruption and addressing inefficiency and mismanagement of the economy. They have not focused on agriculture and export-oriented industry to avoid import of food items and increase exports. Thus, as a result of all these issues, Pakistan does not have sufficient foreign exchange reserves to pay back loan instalments regularly and for the last 15 years, it is living in a near-economic default situation; it is \at the mercy of donor agencies/countries for getting further loans to pay back loan instalments to avoid default.
Had successive governments, especially the PML (N) and PPP governments, which ruled for some 31 years, gathered 50 billion USD foreign exchange reserves, like Bangladesh today, there would be no danger to Pakistan of getting into a near default situation. Therefore, it can be said that all the governments in Pakistan have failed in handling the economy properly and have weakened the country’s economy and the country itself rather than strengthening it. To preserve Pakistan’s endangered sovereignty, security and integrity as a nuclear power, it is necessary to have national cohesion and a strong economy.
To achieve this objective, everything should not be left to the mercy of already tested political forces. Free and fair elections should be held when due after every five years and the winning political party/parties should continue to govern and complete their tenures. This would ensure that free and fair elections are held, and smooth transfer of power takes place, there is no political destabilization, good and consensus-based economic policies are made and implemented, foreign trade flourishes and corruption is controlled. A powerful national monitoring commission comprising the representatives of the government, opposition, military, judiciary, election commission, police and intelligence agencies should be made to work for a minimum 15 years till the country’s foreign exchange reserves rise to 100 billion USD in the next 15 years, so that Pakistan’s long-term sovereignty and security is secured.
The writer is a former research fellow of IPRI and Senior Research Fellow of SVI Islamabad.
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