sep - debt crsis and its management in pakistan
TRANSCRIPT
DEBT CRISIS AND ITS
MANAGEMENT
IN PAKISTAN
ARTICLE:
DR. SHAHIDA WIZARAT
Presented by:Karishma Motiani (6817)
INTRODUCTION
Debt: who benefits?
Countries borrow from other countries with the aim of rejuvenating development and improving their economies through foreign aid..
But.. The experience of developing countries has been totally different:• Most of the benefits from aid flow out of the recipient country to the
donor country tied nature of aid, necessitating the use of the donor country’s companies, consultants, etc.
• As a result most of the aid money is recycled back to the donor country
Conditionalities have had an adverse impact on developing countries:
• It denies recipients and governments the right to freely choose policies best suited to their economic and social conditions
Debt: who benefits?
• Conditionality hampers the development of the countries they are supposed to help and infringe on the country’s democracy and sovereignty
Financial and political instability and slows down growth
• Conditionalties attached to loans or grants often have negative impacts on the poor countries:
They impose inappropriate policies, generate transaction costs and stop or start financing according to donors whims
Two important measures for evaluation of aid are democratic ownership and transparency:
• “-- ownership implies not only participation, but quality participation, with transparency, accountability, democratic values, and rights at the heart of governance.”
DEBT CRISIS
Onset of Debt Crisis in Pakistan
Adoption of a market-based monetary policy by the Government of Pakistan (GOP) in 1990-1991
• This was on account of a World Bank (WB)-IMF conditionality that the GOP borrow at the market rate of interest rather than at a concessional rate from the commercial banks and the domestic financial institutions
This inflated the size of the domestic debt, and the offer by the international financial institutions to make credit available at concessional rates gave birth to the debt crisis
Ever since then, the size of foreign debt has been on the rise
• A large part of this debt benefited the ruling elite and was transferred abroad to buy property and assets in western countries
Total Debt
Total debt has been increasing over the years..
FY 1992-93
FY 1993-94
FY 1994-95
FY 1995-96
FY 1996-97
FY 1997-98
FY98 FY99
Total Debt 1,208.40
1,451.40
1,592.50
1,864.20
2,147.30
2,485.50
2,671.9
0
3,135.40
FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY06 FY 07 FY 08 *FY 09*FY
2010
Total Debt 3,258.40
3,791.8
0
3,723.
50
3,781.
40
3,917.00
4,181.6
0
4468.6
4957.5 632.4 8,306.7 9,685.9
Debt/GDP Ratio Total debt as a percentage of the GDP:
• 1994-95 to 1998-99 : Rapidly increased, and was almost as large as the GDP in the latter year
• 1999-2000 : Size of debt exceeded the size of the GDP • 2001 onwards : Debt/GDP started declining continued throughout the decade, except for a sudden reversal in
2008• * and continued to increase till 2010
Foreign debt as a percentage of total debt:
• 1990s : Rose continuously throughout the decade• 2000 onwards : it started declining
(except for the increase in the year 2001 as an after math of 9/11)• * 2004 onwards : again it has been increasing tremendously –
(09-10 figures are quite disturbing)
Table 1: PROFILE OF DOMESTIC AND EXTERNAL DEBT
in bn. Rs
FY 1992-93
FY 1993-94
FY 1994-95
FY 1995-96
FY 1996-97
FY 1997-98
FY98 FY99
Total Debt (1+2)
1,208.40
1,451.40
1,592.50
1,864.20
2,147.30
2,485.50
2,671.9
0
3,135.40
1.Domestic Debt
609.60
702.00
805.40
916.10
1,049.60
1,159.50
1,176.2
0
1,375.90
2. External Debt* (Short /
598.80
749.40
787.10
948.10
1,097.70
1,326.00
1,483.1
0
1,695.90
Medium and Long)
Debt as percent of GDP Total Debt as % of GDP
90.10 92.30 84.60 87.00 87.40 90.80 99.80 106.70
Domestic Debt as % of GDP
45.40 44.60 42.80 42.80 42.70 42.40 43.90 46.80
External Debt as % of GDP
44.60 47.60 41.80 44.30 44.70 48.40 55.40 57.70
Total Debt Servicing ( a + b )
107.90 134.4 154.4 201.8 258.7 278.4 278.30 343.10
(a) Total Interest Payment ( i + ii )
78.80 90.9 97.3 132.5 161.2 191.7 191.60 220.10
i. Domestic 64.10 74.9 76.1 106.8 132.6 162.9 160.10 178.90
ii. Foreign 14.70 16 21.2 25.7 28.5 28.7 28.70 38.00 (b) Repayment of Principal
29.10 43.5 57.1 69.3 97.5 86.7 86.70 123.00
Ratio of Total Debt Servicing to:
Tax Revenue _ _ 59.90 66.00 79.70 77.00 78.40 87.80
Total Revenue 45.10 49.60 48.60 54.80 67.30 63.80 64.80 73.20
Total Expenditure 31.00 36.80 36.10 39.00 47.80 47.20 43.90 53.00
Current Expenditure 39.60 45.80 44.60 47.60 56.80 56.10 52.50 62.70
Table 1: PROFILE OF DOMESTIC AND EXTERNAL DEBT (SBP ** 08-09 *09-10)
FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY06 FY 07 FY 08 *FY 09*FY
2010
Total Debt & Liabilities
3,553.
90
4,113.3
0
3,911.
60
3,904.
00
4,030.
50
4,288.9
0 456.1 5046.4 6426.4 8,746.6
10,196.4
Total Debt (1+2)
3,258.
40
3,791.8
0
3,723.
50
3,781.
40
3,917.
00
4,181.6
0
4468.6
4957.5 632.4 8,306.7 9,685.9
1.Domestic Debt
1,578.
80
1,731.0
0
1,717.
90
1,853.
70
1,979.
50
2,149.9
0
2321.7
2601.1 3266.1 4,151 5,027.6
2. External Debt*
1,679.
60
2,060.8
0
2,005.
60
1,927.
70
1,937.
50
2,031.7
0
2146.9
2356.3 3036.2 4,155.7 4658.3
3. Explicit Liabilities *
295.50
321.50
188.10
122.60
113.50
107.30
95.5 89 124 **168.8
Debt as percent of GDP
Total Debt 92.90 97.70 87.80 80.10 71.50 66.00 59.9 57.9 61.3 65.2 66.0
Domestic Debt 41.30 41.10 38.60 38.00 35.10 33.10 30.5 29.8 31.2 32.6 34.3 External Debt 43.90 49.00 45.00 39.50 34.30 31.30 28.2 27 29 32.6 31.8 Explicit Liabilities 7.70 7.60 4.20 2.50 2.00 1.70 1.3 1 1.2 **1.3
Total Debt Servicing 418 522.3 588.7 436.4 491.9 358.8 424.4 531.6 670.7 947.0 1,044.9
Total Interest Payment
292.8 280.9 289 253.1 241.8 236.2 294 425.5 549.9 669.4 668.6
Domestic 222 195.4 212.5 189 185.3 181.9 237.1 358.6 474.5 570.2 575.2
Foreign 54.2 64 51.3 48.1 51.2 49.1 50.5 61.1 70.7 89.4 82.2 Explicit Liabilities 16.6 21.5 25.2 16 5.3 5.2 6.4 5.8 4.7 **4.5 Repayment of Principal (foreign)
125.2 241.4 299.7 183.3 250.1 122.6 130.4 106.1 120.8 277.6 376.3
Ratio of Total Debt Servicing to:
Tax Revenue103.1
0118.3
0123.1
078.50 79.60 56.70 56.4 59.8 63.5 **68.4
Total Revenue 81.60 94.40 94.30 60.50 61.00 39.90 39.4 41 44.4 **49.1
Total Expenditure 58.90 72.80 71.20 48.60 52.30 32.10 30.3 31.7 29.9 **38.6
Current Expenditure
66.70 80.90 84.10 55.10 64.50 38.00 37.9 38.7 36.5 **45.4
GDP 10.90 12.40 13.20 9.00 8.70 5.50 5.6 6.1 6.4 **7.2
Fig
. 6.
3
Debt breakdownThe terms on which Pakistan obtained debt can be viewed from the
break down of debt into loans and grants :
•Pakistan was closely aligned with the West , and great bulk of debt was on account of grants
•Share of grants in the total rose to more than 67% in 1961-62
•From then onwards it started declining and was at an all time low at about 11 % in 1969-70
1960s
•Though it picked up later, its level during1970s was much lower as compared with the 1960s
•In 1978-9, of total lending to the country only 3.4% were on account of grants
1970s
•Share of grants in the total gained its 1960s level in 1980s on account of Pakistan’s alignment with the West during the first Afghan War
•But the end of hostilities at the end of the decade led to decline in the share of grants in the total
1980s
•The decline continued throughout 1990s, falling to all time low at 3.5 % in 1996-97
1990s
•After 9/11, share of grants in the total started rising and peaked at 46 % in 2005-6
•Declining thereafter
2000..
Table 2: Grant as a Percentage of Total Aid
S. No. Years Percentage of Grant S. No. Years Percentage of Grant1 1960 - 61 45.1 25 1984 - 85 412 1961 - 62 67.2 26 1985 - 86 333 1962 - 63 40 27 1986 - 87 40.2 4 1963 - 64 34 28 1987 - 88 36.3 5 1964 - 65 39 29 1988 - 89 23 6 1965 - 66 37 30 1989 - 90 27.6 7 1966 - 67 19.1 31 1990 - 91 15.1 8 1967 - 68 15 32 1991 - 92 15.3 9 1968 - 69 24 33 1992 - 93 9.2
10 1969 - 70 11.1 34 1993 - 94 9.5 11 1970 - 71 26 35 1994 - 95 13 12 1971 - 72 28 36 1995 - 96 8 13 1972 - 73 23 37 1996 - 97 7 14 1973 - 74 21.4 38 1997 - 98 3.5 15 1974 - 75 11 39 1998 - 99 11.4
16 1975 - 76 17.3 401999 - 2000
29
17 1976 - 77 19.5 41 2000 - 01 22 18 1977 - 78 17 42 2001 - 02 46 19 1978 - 79 3.4 43 2002 - 03 23 20 1979 - 80 20.5 44 2003 - 04 35 21 1980 - 81 24 45 2004 - 05 38.1 22 1981 - 82 44 46 2005 - 06 46 23 1982 - 83 36 47 2006 - 07 18 24 1983 - 84 43 48 2007 - 08 14
1960
- 61
1962
- 63
1964
- 65
1966
- 67
1968
- 69
1970
- 71
1972
- 73
1974
- 75
1976
- 77
1978
– 7
9
1980
- 81
1982
- 83
1984
- 85
1986
- 87
1988
- 89
1990
- 91
1992
- 93
1994
- 95
1996
- 97
1998
- 99
2000
- 01
2002
- 03
2004
- 05
2006
- 07
0
10
20
30
40
50
60
70
80Percentage of Grant
% o
f Gra
nt /
To
tal l
oa
ns
Grants as a Percentage of Total Aid
DEBT SERVICING
Debt servicing : Repayment of principal + interest payments• Increasing at a spectacular rate throughout the period from 1990s
till the present This at a time when the country was faced with a recession as a
result of IMF imposed tight monetary policy has given rise to serious crises in the country
• Debt servicing: - 1994 to 2002: there was a tremendous increase- 2003 to 2005: followed by a decline (worse)- 2006-08: followed by a sudden upsurge again - * 2009-10: continuing to increase (but the amount of total debt has drastically increased, compared to which debt servicing is still too low)
• Debt servicing / Tax revenues: - 1994-95: Almost 60% of tax revenues were used for debt servicing - continued rising- 1999: rose to a little less than 90%- Debt servicing exceeded total taxes collected in country in 2000, rising to 123% by 2002- But maintaining a steady decline for the next 6 years- 2007 onwards: it has started increasing again, a trend that was maintained in 2008-* 09
• Debt servicing / Total expenditure: - Started increasing from about 36% in 1994-5 to about 73 % in 2001- Declining thereafter, but increased again in * 2009
Table 1: PROFILE OF DOMESTIC AND EXTERNAL DEBT
in bn. Rs
FY 1992-93
FY 1993-94
FY 1994-95
FY 1995-96
FY 1996-97
FY 1997-98 FY98 FY99
Total Debt (1+2)
1,208.40
1,451.40
1,592.50
1,864.20
2,147.30
2,485.50
2,671.9
0
3,135.40
1.Domestic Debt
609.60
702.00
805.40
916.10
1,049.60
1,159.50
1,176.2
0
1,375.90
2. External Debt* (Short /
598.80
749.40
787.10
948.10
1,097.70
1,326.00
1,483.1
0
1,695.90
Medium and Long)
Debt as percent of GDP Total Debt as % of GDP
90.10 92.30 84.60 87.00 87.40 90.80 99.80 106.70
Domestic Debt as % of GDP
45.40 44.60 42.80 42.80 42.70 42.40 43.90 46.80
External Debt as % of GDP
44.60 47.60 41.80 44.30 44.70 48.40 55.40 57.70
Total Debt Servicing ( a + b )
107.90 134.4 154.4 201.8 258.7 278.4 278.30 343.10
(a) Total Interest Payment ( i + ii )
78.80 90.9 97.3 132.5 161.2 191.7 191.60 220.10
i. Domestic 64.10 74.9 76.1 106.8 132.6 162.9 160.10 178.90
ii. Foreign 14.70 16 21.2 25.7 28.5 28.7 28.70 38.00 (b) Repayment of Principal
29.10 43.5 57.1 69.3 97.5 86.7 86.70 123.00
Ratio of Total Debt Servicing to:
Tax Revenue _ _ 59.90 66.00 79.70 77.00 78.40 87.80
Total Revenue 45.10 49.60 48.60 54.80 67.30 63.80 64.80 73.20
Total Expenditure 31.00 36.80 36.10 39.00 47.80 47.20 43.90 53.00
Current Expenditure 39.60 45.80 44.60 47.60 56.80 56.10 52.50 62.70
Table 1: PROFILE OF DOMESTIC AND EXTERNAL DEBT (SBP ** 08-09 *09-10)
FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY06 FY 07 FY 08 *FY 09*FY
2010
Total Debt & Liabilities
3,553.
90
4,113.3
0
3,911.
60
3,904.
00
4,030.
50
4,288.9
0 456.1 5046.4 6426.4 8,746.6
10,196.4
Total Debt (1+2)
3,258.
40
3,791.8
0
3,723.
50
3,781.
40
3,917.
00
4,181.6
0
4468.6
4957.5 632.4 8,306.7 9,685.9
1.Domestic Debt
1,578.
80
1,731.0
0
1,717.
90
1,853.
70
1,979.
50
2,149.9
0
2321.7
2601.1 3266.1 4,151 5,027.6
2. External Debt*
1,679.
60
2,060.8
0
2,005.
60
1,927.
70
1,937.
50
2,031.7
0
2146.9
2356.3 3.36.2 4,155.7 4658.3
3. Explicit Liabilities *
295.50
321.50
188.10
122.60
113.50
107.30
95.5 89 124 **168.8
Debt as percent of GDP
Total Debt 92.90 97.70 87.80 80.10 71.50 66.00 59.9 57.9 61.3 65.2 66.0
Domestic Debt 41.30 41.10 38.60 38.00 35.10 33.10 30.5 29.8 31.2 32.6 34.3 External Debt 43.90 49.00 45.00 39.50 34.30 31.30 28.2 27 29 32.6 31.8 Explicit Liabilities 7.70 7.60 4.20 2.50 2.00 1.70 1.3 1 1.2 **1.3
Total Debt Servicing 418 522.3 588.7 436.4 491.9 358.8 424.4 531.6 670.7 947.0 1,044.9
Total Interest Payment
292.8 280.9 289 253.1 241.8 236.2 294 425.5 549.9 669.4 668.6
Domestic 222 195.4 212.5 189 185.3 181.9 237.1 358.6 474.5 570.2 575.2
Foreign 54.2 64 51.3 48.1 51.2 49.1 50.5 61.1 70.7 89.4 82.2 Explicit Liabilities 16.6 21.5 25.2 16 5.3 5.2 6.4 5.8 4.7 **4.5 Repayment of Principal (foreign)
125.2 241.4 299.7 183.3 250.1 122.6 130.4 106.1 120.8 277.6 376.3
Ratio of Total Debt Servicing to:
Tax Revenue103.1
0118.3
0123.1
078.50 79.60 56.70 56.4 59.8 63.5 **68.4
Total Revenue 81.60 94.40 94.30 60.50 61.00 39.90 39.4 41 44.4 **49.1
Total Expenditure 58.90 72.80 71.20 48.60 52.30 32.10 30.3 31.7 29.9 **38.6
Current Expenditure
66.70 80.90 84.10 55.10 64.50 38.00 37.9 38.7 36.5 **45.4
GDP 10.90 12.40 13.20 9.00 8.70 5.50 5.6 6.1 6.4 **7.2
Fig. 6.3
Ratios of Debt Serving: * FY09 - FY10 On a positive note, country’s debt servicing indicators recorded a mild
improvement during FY10: Resulted from lowering of interest rates on debt instruments (FY10) due to brief
monetary policy easing phase
• FY11: Given challenges faced by the national economy, the country’s debt profile has remained under pressure
Debt servicing, GDP and Exports Debt servicing as a % of Exports:
- A very large amount of export revenues are being used for debt servicing
- 1960s : debt servicing rose to > 50% of our export earnings in 1969-70- 1970s / 1980s : Ratio remained high, although at a slightly lower level as compared to 1960s-1990s : Debt servicing was almost as large as one quarter of our export earnings- 2000.. : started declining, remained at a lower level than1990s -- except in 2003-04 - * 2010 : Debt servicing to exports of goods and services (DS/XGS) deteriorated
Debt servicing as a % of GDP:
- 1960s : Below 2% throughout - 1970s : It crossed the 2 % barrier -- stood at 2.5 % of GDP in 1979-80 - 1980s : Ratio increased further -- was at an all time high at 3.3 % in 1986-87- 1990s : climbed further during debt crisis of 1990s -- was above 3% for most of the decade, peaked to 3.8 % in 1997-98- 2000.. : declined to its 1960s level as a consequence of 9/11
Table 3: Debt Servicing as a Percentage of Exports and GDP
S. No. Yearsas % of Exports
as % of GDP
S. No. Years as % of Exports
as % of GDP
1 1960 - 61 15 0.4 25 1984 - 85 32 2.5 2 1961 - 62 27 0.7 26 1985 - 86 30 2.8 3 1962 - 63 22 1.0 27 1986 - 87 30 3.3 4 1963 - 64 27 1.2 28 1987 - 88 25 2.9 5 1964 - 65 26 1.1 29 1988 - 89 24 2.8 6 1965 - 66 29 1.1 30 1989 - 90 25 3.1 7 1966 - 67 35 1.3 31 1990 - 91 22 2.9 8 1967 - 68 31 1.3 32 1991 - 92 22 3.1 9 1968 - 69 44 1.8 33 1992 - 93 24 3.2
10 1969 - 70 52 1.8 34 1993 - 94 26 3.3 11 1970 - 71 43 1.7 35 1994 - 95 25 3.4 12 1971 - 72 21 1.3 36 1996 - 97 27 3.6 13 1972 - 73 24 3.0 37 1997 - 98 27 3.8 14 1973 - 74 19 2.2 38 1998 - 99 20 2.6
15 1974 - 75 24 2.2 391999 - 2000
18 2.5
16 1975 - 76 22 1.9 40 2000 - 01 21 2.8 17 1976 - 77 27 2.1 41 2001 - 02 13 1.6 18 1977 - 78 25 1.8 42 2002 - 03 12 1.6 19 1978 - 79 26 2.2 43 2003 - 04 24 3.0 20 1979 - 80 25 2.5 44 2004 - 05 10 1.3 21 1980 - 81 20 2.1 45 2005 - 06 10 1.2 22 1981 - 82 20 1.6 46 2006 - 07 9 1.1 23 1982 - 83 24 2.2 47 2007 - 08 10.3 1.2 24 1983 - 84 26 2.3
>2
>3
<2
1960 - 61
1962 - 63
1964 - 65
1966 - 67
1968 - 69
1970 - 71
1972 - 73
1974 - 75
1976 - 77
1978 - 79
1980 - 81
1982 - 83
1984 - 85
1986 - 87
1988 - 89
1990 - 91
1992 - 93
1994 - 95
1997 - 98
1999 - 2000
2001 - 02
2003 - 04
2005 -06
2007 - 08
0 10 20 30 40 50 60
GDP
Exports
Debt Servicing as a Percentage of Exports and GDP
PAKISTAN’S MAJOR DONORS
Consortium countries - Bilateral
1996-97 (11 countries)Japan largest bilateral donorFollowed by USA, Germany, France
2008-09 (17 countries)Japan continued to be the largest bilateral donor, its share in total bilateral debt ↑ sharplyFollowed by France, Germany, USA
62.576389.7481031.699
1586.25
260.098999999999
3645.488152.48626.60470.89111.261
2778.72499999999
Consortium Countries
Belgium
Canada
France
Germany
Italy
Japan
Netherlands
Norway
Sweden
UK
USA
70.6234.9450.2899999999995.942180.6
1808.52
104.626377.24
484.37
116.56
23.22
123.18
80.12
155.45
100.03
9.11
1530.37
Consortium Countries AustriaBelgiumCanadaFinlandFranceGermanyItalyJapanKoreaNetherlandsNorwayRussiaSpainSwedenSwitzerlandUnited KingdomUSA
Debt outstanding: $10,015.83 m Debt outstanding: $ 13,655.14 m
Non-consortium countries
1996-97 - 8 countriesChina single largest donorFollowed by Saudi Arabia, USSR, Kuwait
2008-09 - 5 countriesChina continued to contribute three quarters of non-consortium loansFollowed by Saudi Arabia, UAE, Kuwait
476.55
101.6425.15
67.64
88.17
27.865.70
237.00
Non- Consortium CountriesChina
USSR
Korea
Abu-Dhabi
Kuwait
Libya (loan)
Qatar (Guaran-teed Credits)
Saudi Arabia (loan)
1456.5
97.55
262121
Non- Consortium Countries.
China (including Defense)
Kuwait
Libya
Saudi Arabia
United Arab Emirates
Debt outstanding: $ 1,029.71 m Debt outstanding: $ 1,942.00 m
Multilateral donors
1996-97 - 7 donorsADB single largest donor
2008-09 - 9 donorsWorld Bank (IBRD) has emerged as the largest single donor contributing almost half of total multilateral aid
4,326.75
2,901.64
3,419.13
31.94 114.23 13.16
Multilateral
ADB IBRDIDAIFC LoansIFAD LoanNORDIC In-vestment BankEIB Loan
10261
67
18888
9244
160 165 16 9.2 25.1
Multilateral ADB
EIB
IBRD
IDA
IDB
IFAD
NORDIC Devel-opment Fund
NORDIC Investment Bank
OPEC Fund
Debt outstanding: $ 10,806.84 m Debt outstanding: $ 38,835.30 m
Breakdown of Total
1996-97Multilateral and bilateral aid accounted for almost half of total aid
2008-09Share of multi lateral sources increased to three quarters
10,015.83
1,029.71
10,806.84
Breakdown of the Total
Bilateral Countries
Non Consortium
Multilateral
13,655.14
1,942.0038,835.30
Breakdown of the Total
Consortium
Non-Consortium
Multilateral
SOCIO – ECNOMIC - POLITICAL
IMPACT OF DEBT CRISISIN PAKISTAN
Debt Crisis severe Crises in economy
Debt Crisis
Development Crisis
Growth Crisis
Distributional Crisis
Social Crisis
Political Crisis
Development Crisis: • Owes its existence to the meager amounts allocated for
development during the period• 1990s : little amounts spent on development • 2000.. : Development expenditures started increasing -- continued
to increase throughout the decade, except for a minor decline in FY 03
• * 2009 : declined• * 2010 : increased
development crisis is reflected in the form of lack of physical and social infrastructure, scarcity of water, power, road network, telecommunication, education and health facilities
Table 12 Federal Government Expenditure (in Billion Rupees)
(SBP ** 08-09 *09-10)
Total Expenditure:
1995-96
1996-97 (RE)
1997-98
1998-99
FY 00
FY 01
FY 02
FY 03
(BE)
FY 04
(RE)
FY 05
FY 06
FY 07 FY 08
*FY 09
*FY 10
Defense119.7
127.4 131 144152.
8131.1
149.3
146180.
5216.
3241.
1250.2
329.9
375
Development
26.4
17.3 15 14 11.8 19.1 44.1 39.4 59.1 82.1153.
4236.2
195.7
259.5
Total Expenditure
506.9
550.2 592 686741.
4708.1
948.7
768.8898.
51001
1196.4
1253.8
Growth Crisis: • Non-availability of resources for investment is giving rise to serious
recessionary tendencies and may be termed as a growth crisis
1980s: Rate of growth of the economy was quite impressive
• But the rate of growth of GDP and that of individual sectors has declined throughout the 1990s -- declines in 1992-93, 96-97 and 98–99 were quite disturbing
Table 13 Sectoral Growth Performance (% Growth at Constant Cost)
1980’s
1990's
1993-94
1994-95
1995-96
1996-97 (P)
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Commodity Producing
6.5 4.650.9
5.66
5.6 0.54 5.3 2.2 3 0.2 1.3 4.2 9.3 9.5 5.1 6.6 1.4 0.2
Agriculture
5.4 4.4 246.57
5.8 0.06 3.8 1.9 6.1 -2.7 0.1 4.1 2.4 6.5 6.3 4.1 1.1 4.7
Manufacturing
8.2 4.818.6
3.6 4.8 1.19 7.9 4.1 1.4 8.2 4.5 6.9 1415.5
8.7 8.3 4.8 -3.3
Services6.6 4.6
49.1
4.84.76
2.1 3.2 _ 4.8 4.8 4.8 5.2 5.8 8.5 6.5 7 6.6 3.6
GDP (Constant Factor Cost)
6.1 4.6 _5.24
5.15
1.3 4.3 3.2 3.9 2.2 3.1 4.7 7.5 9 5.8 6.8 4.1 2
GNP (Constant Factor Cost)
5.5 4 _5.75
_ _ 4.2 3.2 3.5 2.3 5.1 7.5 6.4 8.7 5.6 6.7 4.1 2.6
Growth Crisis: • The policies have given rise to the most serious growth crisis
Pakistan has ever faced This is reflected by a stagnating economy, de-industrialization,
unemployment, declining real wages, increase in poverty, etc.
However, the rate of growth of GDP, manufacturing and service sectors improved during the period 2002-3 to 2006-7… ^
as debt/GDP, debt servicing/tax revenues, debt servicing/total revenues, debt servicing/total expenditures declined … ^(more funds for I)
• ** 2008-09: growth rates declined as DS ratios increased… Table 1: PROFILE OF DOMESTIC AND EXTERNAL
DEBT (SBP ** 08-09 *09-10)
FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY06 FY 07 FY 08*FY 09 *FY 10
Debt as percent of GDP
Total Debt 99.80 106.70 92.90 97.70 87.80 80.10 71.50 66.00 59.9 57.9 61.3 65.2 66.0
Ratio of Total Debt Servicing to:
Tax Revenue 78.4087.80
103.10
118.30
123.10
78.50
79.60 56.70 56.4 59.8 63.5
**68.4
Total Revenue 64.8073.20
81.60
94.40
94.30
60.50
61.00 39.90 39.4 41 44.4
**49.1
Total Expenditure 43.90
53.00
58.90
72.80
71.20
48.60
52.30 32.10 30.3 31.7 29.9
**38.6
Fig
. 6
.3
Distributional Crisis: • The growth and development crises have thus given effect to a
distributional crisis The rich are getting richer and the poor getting poorer
• According to an ADB estimate :… of the total population living in cities 50 % were living below the poverty line, whereas in rural Sindh the % rose to 85
This is giving rise to social conflict, i.e. conflicts b/w different segments of the population, and b/w different segments of the population and the government
There has been an increase in crime rates, robberies, suicides and murders
• Governments are perceived as following policies which are not in the best national interest:
This is in turn giving rise to political divergence and instability in the country. It has resulted in downfalls of governments as default on debt appeared imminent
This is a political crisis, which owes its existence to the debt crisis
IMPACT OF DEBT CRISIS ON LABOUR
Impact on Labour Paradox : International financial agencies try containing inflation, but
the conditionalities that come with loans have an inflationary impact..
International financial institutions prescription of bridging the trade deficit through devaluation:
• makes imports more expensive -- Pakistan relies heavily on the import of oil
cost push inflation - increase in cost of generating electricity - increased transportation cost
Monetary tightening, a standard IMF prescription for controlling inflation: (would be a correct measure if inflation is on account of demand pull factors)
• Pakistan: inflation is due to cost push factors instead of controlling inflation it increases inflation - restricting output, which with unchanged demand causes prices to
rise (food prices ↑)
Impact on Labour As a result:- unemployment increased- average real wage across different sectors has not been able to
match the increasing inflationary trends( since the 1990s till present )
- The decline in real wages as a result of price escalation is more pronounced in the recent years and the current situation of price increases is even worse
Basmati Gram Beef(cow/buffalo
year wheat rice Pulse sugar vegetable ghee Tea in with bone) Chicken fresh
milk
(av.qlty) (broken) (avg.qlty) (open market) (Loose) packet(sup.qlty) Kg (Farm) (Liter)
kg Kg Kg kg Kg 250gm Kg
1990-91 3.07 6.1 7.85 11.26 19 20 25.51 N/A 7.71
1991-92 3.62 6.97 8.7 11.62 20.53 20.04 29.62 N/A 8.82
1992-93 3.85 8.06 11.35 12.29 24.08 23.62 32.49 N/A 9.9
1993-94 4.28 8.77 11.72 12.91 29.09 27.65 35.63 N/A 11.07
1994-95 5.07 9.09 21.77 13.74 38.99 29.08 40.68 N/A 12.18
1995-96 5.14 11.27 21.67 16.76 39.38 30.33 47.29 N/A 13.67
1996-97 6.59 12.85 15 21.26 42.76 38.31 54.01 N/A 15.12
1997-98 7.96 13.4 20.22 19.54 45.78 49.88 55.44 57.24 16.27
1998-99 7.72 14.5 22.08 19.09 54 51.89 55.83 54.2 17.71
1999-00 8.19 15.71 25.07 21.11 49.14 48.95 56.78 50.9 17.91
2000-01 8.67 15.35 29.52 27.11 44.82 53.73 56.01 50.65 18.23
2001-02 8.29 15.49 34.89 22.78 49.2 57 55.19 52.04 17.92
2002-03 8.73 18.07 31.13 20.77 55.25 61.5 61.21 54.01 18.35
2003-04 10.25 19.04 24.17 19.01 59.84 64.68 75.45 57.5 19.21
2004-05 11.68 20.19 29.35 23.45 59.6 61.99 94.83 66.43 21.28
2005-06 11.55 20.16 31.12 31.16 58.95 62.62 106.84 66.08 23.9
2006-07 11.96 23.11 41.38 31.85 70.81 68.39 117.87 74.16 26.72
2007-08 16.44 37.77 44.78 27.92 108.43 68.28 123.3 83.39 30.45
JULY-APR
2007-08 17.14 34.65 41.85 27.67 103.62 66.82 122 82.93 29.82
2008-09 25.39 48.03 58.83 37.45 110.69 97.47 141.59 103 35.99
AVERAGE RETAIL PRICES OF ESSENTIAL ITEMS
DEBT MANAGEMENT STRATEGY
Debt Management Strategy
The debt crisis is like the mother crises which is giving rise to the :
development crisis, growth crisis, distributional crisis, social crisis and political crisis
It is therefore important to address the debt crisis, as a result of which there would be spillover effects to the rest of the economy
• External debt is the joint responsibility of the international financial institutions and the multi-national banks, governments of the industrialized countries and the governments and ruling classes in the LDCs, (GOP). The cost of debt servicing should therefore be shared b/w these 3 players
Pakistan: none of the 3 are bearing the cost of debt servicing! It is the middle, lower and poor classes that are bearing the cost of debt servicing in Pakistan
o Debt Rescheduling
The rolling over of debt payment to some future date that merely postpones the problem
Pakistan has gotten its debt rescheduled in the past
Major drawbacks: • Cost of debt increases since interest payments are generally
added up for the intervening periods• Done with the consent of international agencies economic
policies are formulated with their consent, hence demand restraining policies are continued at their command
• Doesn’t have a positive effect on the crises (mentioned above) apart from worsening them over the years
• It is void of the principle of quid – pro- quo, as the burden of debt servicing is borne by the people who have not benefited from these debts
o Unilateral Moratorium on Debt
Countries adopt “won’t pay” because “can’t pay” stance with regard to the servicing of their debts and the principle that only a reasonable % of export earnings will be allocated for
debt servicing
Done unilaterally by the country concerned w/o consent of international donors allows some discretion in policy formulation
Amount of debt is maintained at present level and doesn’t keep escalating as in debt rescheduling
Drawback:• Creditor countries may respond in terms of suspension of
export supply and opening of Letters of Credit (LCs) exports can be affected(final impact will be determined by the DD elasticity for exports and elasticity of SS of imports)
o Debt Repudiation
Debt cancellation on the ground that it is imposed on the people w/o their consent under an un-equal power
relationship… This principle is termed as ‘odious’ debt in international law:
‘debt is invalid if it is imposed by force’
Debt burden which is giving rise to serious crises is removed It serves the principle of quid-pro-quo: If ordinary people
haven’t benefited from debt, most of which has already been transferred abroad, why should they bear the debt service burden.
Drawback: • Creditor countries may counter in terms of suspension of
export orders and difficulty in opening LCs will be difficult to export to the outside world
• US representative to the IMF stated: “If we were to apply the principle of odious debt, most of the Third World debt would simply disappear ”
o Debt Servicing from Assets transferred Abroad
• According to a former US ambassador: $100 billion have been transferred abroad by Pakistanis ..
If a debt management strategy is announced that allocates a certain % of
this looted money for debt servicing, the entire amount can be
serviced in a short period of time
It meets the quid-quo-pro criteria: puts the burden of debt servicing on people who have benefited from this debt
Moreover, it removes a big burden on the economy and can be very effective in tackling the crises (discussed)
POLICY RECOMMENDATI
ONS
Recommendations
• In-spite of the serious crises afflicting the socio, economic and political structure of Pakistan, no attempt has been made at managing these
Since there is a cause-and-effect relationship b/w the various crises, it is important to concentrate on the root cause of these crises and then work through to the rest of them
• An evaluation of different debt management strategies should be done to see which would result in faster eradication of the debt burden
• Considering the severity of the crises afflicting the state of Pakistan, it is necessary that the country’s debts be written off
It is only through removing the debt burden that we can address the very serious crises discussed, which have become worse with the passage of time
ALTERNATIVE VIEW
Success of Debt Management Strategies is essential for our survival
• Presenting Pakistan’s case for Debt repudiation approval• Arranging the import items through barter trade
Obtain loans that have relaxed conditions• Borrow from countries with friendly relations friends, specially
from Middle Eastern Muslim countries
GOP should develop a fund raising scheme for Pakistani citizens, with the motto of ‘a debt-free Pakistan’
• All citizens should contribute financially if the scheme is implemented
The GOP should be sincere enough and committed towards the goal of eradicating the debt burden on Pakistan, else the country will continue to fall into a debt trap and become a slave nation
Abbreviations• ADB – Asian Development Bank• BE – Budget Estimates• CPI – Consumer Price Index• EIB – European Investment Bank• FY – Financial Year• GDP – Gross Domestic Product• IBRD – International Bank for Reconstruction and
Development (World Bank)• IDA – International Development Association• IFAD – International Fund for Agricultural Development• IFC – International Finance Corporation• IMF – International Monetary Fund• OPEC – Organization of Petroleum Exporting Countries• RE – Revised Estimates• USSR – Union of Soviet Socialist Republics• WPI – Wholesale Price Index
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