Discover the main causes behind the rising levels of indebtedness in Pakistan and learn how economic foreign aid dependence are destrying pakistan economy.

Economy of Pakistan is sinking deeper and deeper, year after year, into the marsh of high indebtedness. The debt and debt servicing is fast soaring. Only debt servicing has begun to swallow more than 35% of total revenue of the annual budget.

Causes of Indebtedness in Pakistan

Total debt has constituted 97.5 per cent of the country’s nominal GDP. Such a high magnitude of indebtedness not only increasing rapidly but the repayment liabilities also¹ creating excess pressure on government’s various policies. Consequently, Pakistan instead of reaping the expected advantages of foreign aid, is suffering badly from the disadvantages of it. Why the foreign aid is not proving its in case of Pakistan?

1. Two vital gap could not be bridged so far. Pakistan, being a deficient – resources country, has been depending upon foreign economic aid since its almost very beginning. Unluckily, Pakistan so far could not succeed neither in narrowing the settle investment gap or fining up the foreign exchange earning gap. Both the gaps rather have been widening over time.
2. Drastic change in composition of aid. The compos ion’ of aid has changed drastically over time. ?n early periods, a large pare of aid was in the form of grant-in- aid has substantially declined and replaced by hard term loans repayable in foreign currency. The share of aid and grant like assistance in the total commetments was 80 per cent during First Plan period, which r s dropped to almost 10% at the end of Eight Plan Period.
3. Proportion of tied aid has increased Die main portion of foreign and has been tied to born source and utilization by the donor countries. In case the loan is attached co source, Pakistan has no other option but to make purchases required supplies from the donor country. Similar is the case when aid is tied to utilization. The lean can only be spent for the specific projects approved by the donor. Since the tied aid is giving at uncompetitive prices, therefore it is proving quite a heavy burden to Pakistan.
4. Seventy of hard terms. Pakistan is receiving foreign aid in the form of hard term loans. These loans are repayable in foreign currency at a higher rate of interest. The burden of deberred debt servicing has been increasing rapidly over the last two decades.
5. Decline is Commitments of aid. The commitments of aid has also been declining since the last two decades. Total commitments which stood ac $ 2.576 million in 1990-91 has declined to $ 1.659 million in 1909-2000.
6. Decline in disbursement of aid. The disbursement of aid in total commitments has also been declining since the two decades $ 2,549 million were disburse during 1990 – 9, which fell to $1900 million in 1999- 2000. Since declining amount is not sufficient to meet the actual requirements, the expected rate of economic growth is not taking place.
7. Net transfer is falling over time. The soaring indebtedness has increased the liability of debt-service payments. Consequently, the net transfer of foreign aid is gradually decreasing. Net transfer which was $ 729 million in 1990-91. decreased to $564 million in 1999-2000.
8. Negative effects of devaluation and depreciation. The negative effects of devaluation and depreciation of Pakistan’s currency are also causing to pile up the burden of indebtedness. So far Rupee has last its external worth to more than 400 per cent and the burden of indebtedness has increased with the ime proportion.

How to solve debt problem in pakistan Economic Crises.

To get rid the problem of heavy indebtedness is not an easy task. The follower measures, however, can do a lot. if are carried on the right direction with full devotion and vigour

1. Political disputes must be settled earnestly. Pakistan has a spend every year more than 35% other annual budget on defence due to persistant hostile attitude of India. Both the countries have been wasting their scarce resources on pur­chasing arms and ammunition from the foreign countries at the heavy cost of depriving their people from basic necessities. Both the countries are suffering from all the negative consequences of heavy indebtedness. To sit together and settle their political disputes earnestly can help them to reduce a lot of their military expenditure. The same can be used to repay their long-lasting outstanding loans within a decade or so.
2. Donor countries must write off their loans. The donor countries should show the generisty by writing off their loans at least of those poor country whose per capita income falls less than 700 dollar. In case this solution does not seem good to the donors international agencies like IMF and World Bank should make agree them to write off at least the debt service for a decade or so far those countries who are badly facing the debt crisis like Pakistan.
3. Additional soft loans must be provided The donor countries and international financial agencies must be pursuaded to provide additional soft loans on concessionary rate of interest. These loans should be used for repaying the obtained hard loans.
4. Trade barriers must be removed. Currently, Pakistan has to face a number of trade barriers in terms of quota etc imposed by the developed countries. Pakistan is basically a labour-intensive country, it relies for foreign exchange earnings mostly on Us labour-intensive goods like grey cloth, cotton, carpets, surgical instruments, sports goods, and footwear etc. Removal of barriers will help Pakistan to increase its exports which will definitely help In earning more and more foreign exchange earnings which in turn, will reduce the burden of indebtedness.

Trade Libralization must be benefited.

With the implementation of Uruguay Agreement, globalisation act will reduce the tariff and remove non-tariff barriers. This, to turn,, will make the advanced technology available at cheaper prices. Pakistan can take advantage of using the latest technology to produce value-added goods.

6. Privatization proceeds must be used to repay the debt only. The amount which is being received from selling state owned enterprises must be used only to repay domestic and foreign debts.
7. Remittances must be encouraged. Remittances has been substantially declined over past many years. Pakistanis working abroad must be encouraged to send their remittance regularly through proper channel. Illegal transfer of remittance must be discouraged vigorously. An attractive package of incentives can serve this purpose usefully.
8. National Debt Retirement Programme must be implemented devotedly. The Government of Pakistan has launched a National Debt Retirement Programme. Under this programme, a special drive to boast exports, liberal incentives to attract foreign investment and improving national savings like measures are being taken. The programme must be implemented with letter and spirit.
9. Pakistan must be allowed to use of aid funds according to its will. Bulk of the aid which is received by Pakistan is tied by resources or utilization. For which Pakistan has to pay in more of the cases, comparatively higher price. If Pakistan is allowed to use of. aid funds according to its will, its will, it will definitely make much difference. According to an estimate, nearly 15 to 20% can be saved this way.