Friday May 24, 2024

Deadly debt trap — conspiracy via international default

By Senator Rehman Malik
July 14, 2019

Sitara-e-Shujaat, Nishan-e-Imtiaz

Nation must be aware of the fact that Pakistan is being pushed on fast track towards the international default and FATF is one of the tool being used against us to cripple our investments from abroad & international business dealings.

The debt itself is like a growing cancer to the economy of any country as it destroys the financial system of the country. It increases liability and it is one of the deadly anti-economic parasite which cripples all the positive economic parameters to the extent that national economic growth begins to get deteriorated.

The external debt depletes the foreign exchange reserves of a country impacting the value of its currency. The devaluation of Pak rupee has already affected the economy of Pakistan which is highly detrimental, bringing the country economy to almost irreversible cycle.

This is one of the factor which is depleting the economy but at the same time it also becomes an attributing factor in the increase of inflation rate which has risen from 7 percent to 11.2 percent in the last 11 months. Similarly, the price of Pak rupees against dollar depleted from 115 to 160 during the last 11 months.

The debt servicing directly hits the country’s foreign exchange and the devaluation of rupee directly adversely impacting the imports in terms of price hike. The internal management of economy and day to day running of the government becomes more difficult with depleting reserves. Shortfall of dollars and decrease in growth rate compels the government to go for the internal borrowing.

During the last 11 months, the present government has taken $9.7 billion loan in addition to printing of currency notes, ignoring the risk that printing of currency notes will be an attributing factor for further inflation as the inflation is a major attributing factor in the increase of price hike.

The total loan taken by PPP government in its 5 years tenure was $16 billion and by PML-N government $20 billion in 5 years while the total loan taken by PTI government in alone 11 months tenure is $9.7 billion and the dollar rate in PPP government was 100 and during PML-N government it was Rs115 and now in PTI government it has raised to Rs160 against one US dollar.

This deadly debt trap does not restrict only to the increase in price of commodities adversely affecting the life of a common man but also it has a direct effect on the other institutions wherein the factor of import and export is involved.

This depleting economy and expensive imports by the government is going to affect our imports of defence equipment, training of personals and similarly the import of raw material by the private sector and its use in industrial sector will have adverse effects on the price. This becomes another attributing factor to increase the price of the products which are based on import of raw materials. For a comparison, the total import in PPP government were $33.15 billion, in PML-N government were $45.2 billion and now in PTI government ranging from $50.474 billion to $55.72 billion.

The present position of the foreign debts taken by the PIT government is as under:-

Loan taken from IMF $6 billion and Loan taken from World Bank and Asian Development Bank is $2-3 billion, Internal Loan taken from State Bank of Pakistan surges to historic high of RS5.4 trillion, Local Borrowing from Commercial and International incline the government domestic debt to Rs18.17 trillion, loan generated from other institutions like Islamic Development Bank is $578 million.

To sustain and take the country out of this economic crunch, which is raising its head and becoming uncontrolled monster that may drive the country towards local to international default resulting partial bankruptcy. It is unfortunate to note, even IMF after committing $6 billion has released only one billion dollar whereas we owe to IMF in addition to the principle interest of 4.2 billion to be paid back to IMF.

The propaganda of the government and other sources gave the impressions that the package of IMF will be able to bail out Pakistan from the present economic crisis. It looks that we are not getting out of the crisis but we are deeply being pushed towards international bankruptcy by this deadly trap of international debts and local borrowing.

On the other side, the FATF is going to be yet another setback which will be adversely affecting the economy due to external and international pressure. This continuously increase liability of debt is ultimately going to affect the most particularly lower middle class and a common man. I don’t know, if the government has done any exercise to determine the adverse effects of this economic crunch on various level of society.

It is worrying to note that the common man is feeling highly under pressure to maintain their daily routine expenditures and to maintain simple loaf of bread for their children. This economic crunch has also affected education of the children as the parents are finding it almost impossible to afford the fees of their children due to the price hike. And, many parents have already shifted their children from standard schools to ordinary private schools or government schools.

It is also worth mentioning here that all previous governments had ensured that the budgetary provision should not hit the oppressed class and marginalised segments of the society. The present scenario in the country clearly indicates that this economic crunch and deadly debt trap is obviously badly affecting the whole society. The government needs to know all that have stated above and find out a solution to ease out the life of a common man. In other case, if government fails to ease out the life of a common man then a common man can make the life of a ruler miserable.

I would also like to say that the present deadly debt trap both external and internal needs to be tackled on save SOS basis without any delay. Instantly, I do not see any workable and plausible solution with the government to overcome such future disaster.

It is written on the walls that the prices are going up unhindered and again the wrath of this increase is going to be placed on a common man and lower middle class of the country. It looks that the every passing day is bringing unending stress for the public. It looks if it continues this way, the middle class and lower middle class will be finished and converted into a poor class.

The people will not bother as to what is happening on the political front but the main concern of a common man is that what relief is being given to a common man to ease out his life. I have analysed the above position as a student of the economy but I think the economic team must come up with some proposal to handle the situation and safeguard the interest of the common man and the same should be discussed in the Parliament House with some consensus to have a better governed economy rather than running on ad hoc basis and avoiding the use of Parliament as exchange of abusing club. It should be used for the betterment of people and they should not be disappointed with this.

In my humble suggestion I feel that the international institutions will be hesitant to help Pakistan in dragging out of this deadly debt trap. Some world powers want to see Pakistan drifting towards international default.

In this scenario I would like to give an important suggestion to the government:-

Our government should negotiate with China to buy our debts and we should deal with import and export with China in Chinese Currency Yuan on barter trading system. This idea was given by PPP government wherein the proposal was made to his effect. I would like to take it forward and suggest the government to request China to buy our loan of 105 billion dollars and repayments be made after 5 years. We can partly adjust our share of profit proceed from the CPEC projects.

I see this option as the ray of light to stabilise our economy in the shortest possible time. My proposal to the government is to concentrate on the revival of economy and save the country from becoming an international defaulter.

The friendly Muslim countries had not given any cash but they are providing oil on deferred payments and this payment will also be due in course of time. It is pertinent to mention that technically speaking all oil producing countries supply oil to their clients either through deferred payments or via standby LCs for six months to one year as routine. It is therefore advised not to rely on this money as an achievement of the government for borrowing more foreign exchange to Pakistan. In fact it was sale of their oil to Pakistan on easy financial terms.

Let us hope and see how our government will save our mother land out of this unhindered financial debt trap.

These are my personal views and not necessarily represent my party views or policy.

The writer is Chairman of think tank "global eye" & former interior minister of Pakistan. Chairman Senate standing committee Interior. Email:, Twitter @Senrehmanmalik, @GlobalEye_GSA, WhatsApp +923325559393