Pakistan, External Debt, Corruption & Bankruptcy

//Pakistan, External Debt, Corruption & Bankruptcy

Pakistan, External Debt, Corruption & Bankruptcy

An outstanding loan that one country owes to another country or institutions within that country Foreign debt also includes due payments to international organizations such as the International Monetary Fund (IMF).

Corruption is the abuse of entrusted power for private gain. It can be classified as grand, petty and political, depending on the amounts of money lost and the sector where it occurs. It is the misuse of public power (by elected politician or appointed civil servant) for private gain. The process by which a word or expression is changed from its original state to one regarded as erroneous or debased.

Bankruptcy is a process in which consumers and businesses can eliminate or repay some or all of their debts under the protection of the federal bankruptcy court.

To operate some major projects, government has to take loans from national and international sources. These debts and their service charges are increasing day by day. While taking loans from abroad we have to follow the terms and conditions of foreign donors that is the major obstacle in our growth and development process. Today, the burden of total public debt is Rs. 8960 billion and an external debt is $ 61.9 billion.

The government has crippled the country’s economy by borrowing loans in huge amounts unprecedented in Pakistan’s history and the country has gone nearly bankrupt. FDI exports lesser than Bangladesh due to internal terrorism, weak democratic leadership and meddling of its rogue military and still feels it’s so very important to the West like during the cold war era made Pakistan unfit for the 21st century. This country will collapse no one can stop it. It is a failed state and will be bankrupt sooner or later. The government is engulfed by crises left behind by Pervez Musharraf, the military ruler who resigned the presidency in August. High oil prices have combined with endemic corruption and mismanagement to inflict huge damage on the economy.
Given the country’s standing as a frontline state in the US-led “war on terrorism”, the economic crisis has profound consequences. Pakistan already faces worsening security as the army clashes with militants in the lawless Tribal Areas on the north-west frontier with Afghanistan.
The economic crisis has already placed the future of the new government in doubt after the transition to a civilian rule. President Asif Ali Zardari has faced numerous but unproven allegations of corruption dating from the two governments led by his wife, Benazir Bhutto, who was assassinated in December 2007. The Wall Street Journal said that Pakistan’s economic travails were “at least in part, a crisis of confidence in him”. While Mr. Musharraf’s Prime Minister, Shoukat Aziz, frequently likened Pakistan to a “Tiger economy”, the former government left an economy on the brink of ruin without any durable base. The Pakistan rupee has lost more than 26 per cent of its value so far this year and inflation now runs at 5 per cent. The rise in world prices has driven up Pakistan’s food and oil bill by a third since 2007. Efforts to defer payment for 120,000 barrels of oil supplied every day by Saudi Arabia have not yet yielded results, while the government has also failed to raise loans on favorable terms from “friendly countries”.

Democratic Elected Politicians of Pakistan put in their Pockets almost 140 Billion $$ in last 68 Years of Pakistan Existence, they are Most Corrupt Politicians on the Face of Earth put all their Corruption Money in Swiss, Dubai, UK, USA banks; these countries make sure that once money comes in their Banks, it can never be taken back as full amount to Pakistan and other third World Countries Democracy for all Third World Poor Countries have in reality Failed People of these countries and take them deeper in Poverty – West White Rich World make sure that Corrupt Democracy and Politicians remain in Power to Bankrupt these countries and take them Deep in Debt to the World Bankers & IMF. PPP is mainly responsible for the Total Destruction & Bankruptcy of Pakistan, in fact When ever PPP comes in Power either Pakistan lost big Part of Land like Bangladesh (East Pakistan) or Pakistan loose Billions of $$$. PPP is bad Omen for Pakistan with PPP leaders (Bhutto & Zardari Families) are just Black Vultures Snakes who always Bite Pakistani People and Nation – PPP must be destroyed and all his leaders either hanged and all their Wealth will be taken by Pakistani Govt. PPP is solely responsible for introduction of Corruption Culture to Pakistan, All other Parties of Mr Sharif, Imran Khan, MQM in reality Copy Cat PPP Corruption at Top Levels.

During her two terms in the office of Prime Minister in Pakistan, Benazir Bhutto, daughter of Zulfiqar Ali Bhutto acquired wealth and cash worth a few Billion dollars, most of which is located in Europe and Middle East After the dismissal of Benazir Bhutto‘s first government on August 6, 1990 by President Ghulam Ishaq Khan on grounds ofcorruption, the government of Pakistan issued directives to its intelligence agencies to investigate the allegations. After the fourth national elections, Nawaz Sharif became the Prime Minister and intensified prosecution proceedings against Bhutto. Pakistani embassies through Western Europe, in France, Switzerland, Spain, Poland and Britain were directed to investigate the matter. Bhutto and her husband faced a number of legal proceedings, including a charge of laundering money through Swiss banks. Though never convicted, her husband, Asif Ali Zardari, spent eight years in prison on similar corruption charges. After being released on bail in 2004, Zardari suggested that his time in prison involved torture; human rights groups have supported his claim that his rights were violated.

A 1998 New York Times investigative report claims that Pakistani investigators have documents that uncover a network of bank accounts, all linked to the family’s lawyer in Switzerland, with Asif Zardari as the principal shareholder. According to the article, documents released by the French authorities indicated that Zardari offered exclusive rights to Dassault, a French aircraft manufacturer, to replace the air force’s fighter jets in exchange for a5% commission to be paid to a Swiss corporation controlled by Zardari. The article also said a Dubai company received an exclusive license to import gold into Pakistan for which Asif Zardari received payments of more than $10 million into his Dubai-based Citibank accounts. The owner of the company denied that he had made payments to Zardari and claims the documents were forged. Corruption charges against Benazir Bhutto and Asif Ali Zardari – Wikipedia, the free encyclopedia 1971 debacle and Bhutto’s role (Father of Benazir Bhutto) 1971 debacle and Bhutto’s role – The Express Tribune.

This is with reference to Sirajuddin Aziz’s article “Our 1971 debacle” (December 16). The writer’s emotionalism with regard to the loss of our eastern wing is understandable but what is not is that he eulogized the role of Zulfiqar Ali Bhutto in lifting the morale of a demoralized nation. In fact, I would say that he would speak half the truth about what had happened. When Mujeeb-ur-Rehman achieved a landslide victory in the 1970 election, instead of accepting the defeat provoked the people of East Pakistan, Mr. Bhutto made very provocative statements which further alienated the former. This may well have sowed the seeds of separation. He also committed the crime of boycotting the session of parliament that was held in Dhaka on March 3, 1971. Had Bhutto agreed, at the United Nations, to a referendum for the people of East Pakistan, the army would have been saved from the impending humiliation. Surely, his role was not positive in the whole affair. Safir A Siddiqui Published in The Express Tribune, December 19th, 2010.

Corruption references against Sharif brothers pending in accountability court, ECP told Corruption references against Sharif brothers pending in accountability court, ECP told – The Express Tribune Corrupt Imran Khan’s Corruption Scandal Exposed: Imran Khan’s Corruption Scandal Exposed. He invested the money that he received from Overseas Pakistanis into his personal Property Business. If we say that whatever mandate PTI got in the general elections last year was solely because of Imran Khan’s firm and clear stand against the corruption, it wouldn’t be wrong. The educated and privileged youth of the country went to support Imran only because of the promises he made, during his election campaign. But as we reflect on the track record of PTI and Imran Khan we only witness ‘Change’. Not exactly the change which Imran promised to the nation but a change that nobody could have imagined in his worst of nightmares Starting from Taliban apology to blocking NATO supplies and then representing TTP unofficially Imran Khan has always let down his followers. That is the basic reason; Khan seems to be losing the fan base that he gathered up in the last five to six years in a matter of months. His supporters and voters seem to be losing hope in him and the youth especially first-time voters have been left in limbo with nowhere else to go.  The most recent corruption scandal that has jolted the roots of PTI and placed a big question mark of Imran Khan’s character, is the missing 3 million US$, which were collected in the name of membership fund from the overseas Pakistanis, and no one knows what Imran did with the money. This news could be taken as authentic because the scam is revealed by a founding member of PTI itself, who claims that Imran Khan has misused his powers to such an extent that now he doesn’t have any other option left but to unmask the real Imran Khan.

Perhaps Imran and his supporters need to travel back in time and assess when things started falling apart Inside-out corruption of Imran Khan | Pakistan Tribe Amir Sohail Exposed the Corruption of Pakistan Cricket team – Asif Ali Zardari: life and style of Pakistan’s Mr 10 Per Cent Asif Ali Zardari: life and style of Pakistan’s Mr 10 Per Cent – Telegraph Mr 10 percent Asif Zardari Facebook  Mr. 10 Percent, President of Pakistan? Mr. Zardari told the Wall Street Journal that Pakistan needed a bail out worth $100 billion from the international community. “If I can’t pay my own oil bill, how am I going to increase my police?” he asked. “The oil companies are asking me to pay $135 [per barrel] of oil and at the same time they want me to keep the world peaceful and Pakistan peaceful.”

The relationship between external debt and economic growth has been examined extensively in recent years. These studies have largely focused on the harmful effects of a country’s “debt overhang” – the accumulation of a stock of debt so large as to threaten the country’s ability to repay its past loans. The empirical findings suggest that debt overhang depresses growth by increasing investors’ uncertainty about actions the government might take to meet its burdensome debt servicing obligations. Debt extend beyond may also discourage efforts by the government to carry out structural and fiscal reforms that could strengthen the country’s economic growth and fiscal positions, because a government whose financial position is improving almost inevitably finds itself under increasing pressure to repay foreign creditors. This disincentive to reform would exist in any country with a heavy external debt burden, but it is of special concern in low income countries, where structural reforms are essential to sustain higher growth. Another interesting finding suggests that external debt slows growth only after its face value reaches a threshold level estimated to be about 50 percent of GDP or in net present value terms, 20 – 35 percent of GDP.

Any debt strategy is incomplete without a supporting fiscal policy. The root cause of increase in debt is fiscal imbalances so the importance of a prudent fiscal policy cannot be overemphasized. A sound fiscal policy is essential for preventing macroeconomic imbalances and realizing the full growth potential. Pakistan has witnessed serious macroeconomic imbalances in the 1990s mainly on account of its fiscal profligacy. Persistence of large fiscal deficit resulted in unsustainable levels of public debt, adversely affecting the country’s macroeconomic environment. Pakistan accordingly paid a heavy price for its fiscal indiscipline in terms of deceleration in economic growth and investment, and the associated rise in the levels of poverty. Considerable efforts have been made over the last six years to inculcate financial discipline by pursuing a sound fiscal policy. Pakistan’s hard earned macroeconomic stability is underpinned by fiscal discipline.

Pakistan is fast turning into a bankrupt country – that is if it has not already done so. If this trend continues then Pakistan will soon lose its economic stability & sovereignty. Moreover, because of financial problems caused by this debt, Pakistan’s institutions will find it hard to function including the military of Pakistan, which is essential for fighting terrorists and balancing external threats. A bankrupt Pakistan and a bankrupt military will spell nothing short of a disaster for Pakistan. Pakistan’s external debt has increased substantially in the last nine years (Figure 1). Between 2007 and 2014, Pakistan’s external debt increased by around $35 billion to $89.6 billion, in inflation adjusted terms. This is about a 156 per cent increase in external debt. Moreover, the worrying trend has been that in recent years the rate at which external debt has been accumulated has increased substantially.

It is evident from external debt stock, total reserves as a percentage of external debt, export growth, currency exchange rate and fiscal deficit that since 1988 the only administration that has improved Pakistan’s finances was that of President Pervez Musharraf. In contrast, various PPP and PML-N governments have taken Pakistan’s finances towards an unsustainable path of external borrowing. The PML-N government, which came to power in 2013, has made the external debt situation exceptionally worse. By some estimates, the PML-N government has taken on an extra $25 billion in external loans in the last 2 years. Without any resources to pay these loans back, low growth in tax revenue, a depressed economy and a depreciated currency, this external debt is likely to take Pakistan towards a financial crisis.

During the governments of PPP, PML-Q and PML-N, external debt increased substantially. External debt increased by around $15.4 billion between 1988 and 1999 and by around $20 billion between 2007 and 2012. These figures show that the governments of PML-N and PPP have followed an unsustainable path of borrowing both in the 1990’s and since 2007. In contrast, external debt declined during President Musharraf’s administration, declining by around$3.4 billion between 1999 and 2006.

When Musharraf government left every body knows that there was nothing in the pooled money. It only enjoyed the benefit of debt rescheduling and PPP and PML-N government are regularly paying the installments. The debt burden rose to $66 billion during the PPP period but Pakistan did not default. It was brought down to $59 billion by the present government which now stands a little more than $61 billion. Musharraf government started from $39 billion and at the end of the regime it was $46 billion and increase of 17.9%. PPP escalated the debt to $62 billion when handed over the government that was 34.7%, Fort the present government the external debt till May 19 was still under $62 billion. Everybody knew Pervez Musharraf threw the country into a dilemma politically and economically. Not only has Pakistan’s external debt increased, but at the same time Pakistan’s ability to pay back this debt has decreased significantly. A good indicator of a country’s ability to pay back external debt is total reserves as a percentage of external debt. Between 2006 and 2014, total reserves as a percentage of external debt decreased by 16.5 percentage points. With the recent increase in debt obligations and reduction in foreign reserves, this ratio is likely to have further deteriorated. In comparison, during the administration of President Musharraf, total reserves as a percentage of external debt increased by 28.4 percentage points. In addition, Pakistan’s export growth has also slowed. Exports are a major instrument for a country to gain access to foreign currency, which can be vital for paying back external debt. Between 2007 and 2012, average annual export growth has been ‑0.6 per cent, as opposed to a staggering 10.2 per cent average annual growth achieved under President Musharraf’s administration.

Moreover, Pakistan’s ability to pay back external debt has been further eroded by the devaluation of Pakistan’s Rupee, which depreciated by around 67 per cent between 2007 and 2013. The Pakistani Rupee has depreciated mostly because of macroeconomic mismanagement, lack of growth in exports and reduction in foreign direct investment. Such a significant devaluation of the Pakistani Rupee means that Pakistan’s ability to pay back external debt from domestic resources and domestic revenue has been considerably reduced. Since 1988, the only period in which the Rupee stabilized was between 2001 and 2007. This was achieved by increasing foreign cash inflow into Pakistan by increasing exports, foreign direct investment and remittances during the administration of President Musharraf.

Pakistan’s budget deficit as a percentage of gross domestic products (GDP) has also deteriorated since 2006, decreasing by 4.06 percentage points. Figure 4 shows the deteriorating budget deficit for Pakistan under the PPP and PML-N governments. This budget deficit is likely to force Pakistan to depend more on both foreign and domestic borrowing, pushing Pakistan further into a potential debt trap.

Furthermore, it seems as if the governments of PPP and PML-N have no incentive to be concerned about paying back the external debt that their respective governments have borrowed. According to the World Bank data, average grace period of new external debt commitments since 2007 is 8.6 years. As the election cycle in Pakistan is five years, less than the average grace period for new debt, the subsequent governments of PPP and PML-N have not had to be concerned about paying back this debt during their respective tenures. Instead this new external debt is only going to be a problem for future governments and Pakistani citizens. This is a clear example of moral hazard. In economics, moral hazard is where an economic agent does not enter into a transaction in good faith, partly because he does not have to face the full cost of his decisions. Since the governments of PPP and PML-N don’t have to worry about paying back the debt they borrowed during their respective tenures, they have borrowed excessively – causing a moral hazard problem.

By analyzing Pakistan’s macroeconomic and financial fundamentals it seems as if Pakistan is being pushed into a bad debt trap by the governments of PPP, PML- Q and PML-N. If drastic measures are not taken towards fixing the Pakistan’s economy, then Pakistan will soon end up in a financial crisis. Below I analyze some of the key economic variables for Pakistan, namely: external debt stock, total reserves as a percentage of external debt, budget deficit, exports and the exchange rate of Pakistan.

In summary, Pakistan’s macroeconomic fundamentals have weakened substantially since 2007. Reductions in Pakistan’s export growth and foreign direct investment have further diminished Pakistan’s ability to generate Forex reserves to pay back external debt. Meanwhile, Pakistan’s high budget deficit continues to be a drain on its economy. Given the state of the economy, it seems as if Pakistan is surviving on a borrowed economy. If Pakistan’s finances are not managed properly, then Pakistan will soon become an economic failed state and dependent on international donors. Such an outcome is likely to cost Pakistan its sovereignty and financial independence!

2018-07-19T04:24:21+00:00