History behind the economic problems faced by Pakistan (2)

The most difficult challenge faced by the country today in the short term is

external liquidity problem i.e., the ability to meet its current obligations such as

imports of goods and services and meet all debt service obligations at the same time.

There is a gap between external receipts and external payments of about $ 2.5-3

billion annually for the next few years. To meet this gap Pakistan has to reschedule

its debt service obligations and find ways to obtain new concessional loans after

curtailing its expenditures and maximizing its revenues.

Those who accuse the present economic managers of toeing the lines of the

IMF, being totally submissive to their dictates and (in the eyes of some) acting as

agents of these institutions forget a simple fact : Pakistan has had more than half-a

dozen economic managers during the past 10 years, and some of them were

popularly elected politicians, others were technocrats or former bureaucrats who

had no past relationship whatsoever with the IMF or the World Bank.

Unfortunately they had to enter into as many as 11 agreements with IMF during

past 10 years, had to follow the same course of action and the same policy

prescriptions, even at the time when we did not have the urgent need to reschedule

Pakistan’s external debt. These managers also had the luxury of using foreign

currency deposits of residents and non-residents to finance the external deficit. They

borrowed short-term commercial loans to build up reserves. I am not trying to be

defensive but am laying out the facts that since May, 1998, the country has lost one

important source of external liquidity i.e., foreign currency deposits. This

Government has decided not to borrow short-term commercial debt for building up

reserves. Home remittances through official channels are down by $ 500 million

annually compared to the pre-May 1998 period. Foreign investment flows are down

to less than $ 400 million compared to average flows of $ 1 billion. Oil import prices

have shot up from $ 14-15 barrel to $ 28-$ 30 barrel and the oil import bill has

doubled from $ 1.3 billion to $ 2.6 billion in just one year. During the first half of the current fiscal year, we have already imported oil worth $ 1.7 billion. Despite the

15-20 per cent increase in volume of our textile exports, the unit value of our

exports are down by 7-10 per cent on average. In this scenario, how can any one

keep the wheel of the economy moving in an orderly manner without recourse to

relief or injection by the International Financial Institutions. Japan and other

bilateral donors have also not come to our help as they had before May 1998.

No economic manager worth his grain will like to have his hands tied down

by external agencies, while he has to deliver according to the expectations of

domestic constituents. The sooner we are able to ween ourselves off the IMF

programmes the more liberated will be the economic managers of this country in

pursuing an independent course of action, which balances the interests of the

common man, the requirements of the global economy and, at the same time,

follow a prudent growth – oriented set of policies. It is not that we are not

committed to macro economic stabilization or removal of distortions from the

economy. But we need the flexibility to do so. I can assure this audience that the

present global environment in which we are expected to produce instantaneous

results is highly constrained and does not allow much room for maneuver.

As the debt rescheduling period was coming to an end in December 2000,

and the Government’s capacity to fully service its external debt had not improved

during the last 2 1/2 years period there were two options available – unilateral

moratorium or further rescheduling. The option of unilateral repudiation or

moratorium would have caused such enormous hardships for the country that it would have been simply unbearable. How many of us could have tolerated the

prospect of PIA planes being seized at international airports, the requirement that

all our imports must be paid for in cash and the inflation rates running at 30-40

percent with scarcities and rationing all around. I do not think any Government

would like its citizens to go through this scenario. We therefore rejected this option

as we came to the conclusion that the situation would have been far worse and the

overall suffering to the population would have been more severe.