Dr. Farid A Malik |
For the debtor, it is the pound of flesh that matters. As such debt should be taken very seriously as it has to be returned with a markup. In case of being misspent, it initiates a never-ending crisis. After over six decades of financial mismanagement, today Pakistan is entrapped in an insurmountable debt trap. As Prime Minister (PM) Kaptaan seeks a debt free country. A debtor nation is unable to exercise its sovereignty. The big question is, can Pakistan untrap itself?
Till 1958 Pakistan had no external debt. The rulers and the ruled both lived within means. Life was straight and simple. The entire household slept through long summer nights with one pedestal fan only. Being the youngest in the family I usually slept without this man-made luxury. The two meatless days were strictly observed. There were no freezers to store meat and consume later.
Liaquat Ali Khan the first PM announced his resolve of not building his own house till every Pakistani had a roof above his head.
Before Butt Sahib’s indigenous deep freezer could hit the market the imported models were made available. Loans, permits, monopoly, over-invoicing, under-invoicing were allowed for a selected few. Individual debt became national debt when loans were written off. Austerity was replaced with spending. Spend now pay later because of the norm. When payment time came there was nothing in the kitty. State expenses went up while both revenues and performance declined.
Despite declining exports, imports kept rising creating a serious balance of payment crisis. Spending borrowed money on import of luxury goods is a recipe for disaster which was followed with a closed mind. I remember the day when I was finishing my higher education in the USA. Every graduating student received offers for credit cards and loans. It was a perfect trap to capture the future income of graduates, those who fell into this trap, spent their entire life paying it back.
Unfortunately, Pakistan has also been trapped due to unscrupulous leadership that focused on short term luxury while compromising on long term impact with no planning for its repayment and retirement. Lack of revenue collection is a clear indication of the failure of the state. With over 47 types of taxes, the collection is unmanageable. Pakistan has one of the slowest growing formal economy and the fastest expanding informal sector in South Asia.
As Prime Minister Kaptaan seeks a debt free country. A debtor nation is unable to exercise its sovereignty. The big question is, can Pakistan untrap itself?
While the state only consumes, the non-state entities that are hidden from the system produce. It is a unique situation, one of the highest clarity and lowest tax paying nations of the world. No country has succeeded in fighting poverty through the IMF- World Bank type loan programmes. Russia was able to pay back its Soviet-era debt of $22 billion by first rescheduling its payments and then putting its house in order. Today the country is debt free. Iran had accumulated a foreign debt of about $20 billion due to the Iran-Iraq war.
With strict austerity measures and increased oil revenues, the Iranians were able to come out of the debt trap. Argentina followed a similar course to put its economy back on track. China relied on its own resources for development with a focus on self-reliance and human resource development. Today the country has reserves running into trillions of dollars with no loans.
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From zero external debt in 1958, it stands at $95 billion today. In the last decade, more than $60 billion has been added with no plans to pay it back. Even the interest payments are not manageable. We stand at two extremes, Kaptaan desires to make Pakistan debt free while the state exchequer is empty. Due to the personal efforts of the PM, the country has been able to avoid default by arranging the payments from friendly countries.
Pakistan has one of the slowest growing formal economy and the fastest expanding informal sector in South Asia.
The task of raising revenue was assigned to the team. With choked non-performing state apparatus it could not be accomplished in a few months. As a result, the easy way out of indirect taxes was applied resulting in spiralling of prices which hurt the common man. While the rich remain out of the tax net, the poor are made to carry the burden which is unfair and unwarranted. For its sovereignty, a nation must learn to live within its income and resources.
It must build on its strength while overcoming its weaknesses. There is a need to slash our import bill. Items like fuel, edible oil and tea can be drastically reduced through planned local production. Huge investments have been made in the Defence Production sector to produce armaments for the nation’s security. These technologies can be employed to produce commercial products like cars, bicycles, rickshaws etc. import of which consumes foreign exchange. Our natural resources remain untapped.
Due to the personal efforts of the PM, the country has been able to avoid default by arranging the payments from friendly countries.
Finally, we have succeeded in extracting our coal to generate power. This black gold can be a game changer. A major coal-based energy sector can be developed at Thar to produce power, gas, fertilizers, chemicals, clean liquid fuels etc. The debt in Pakistan has been imposed to compromise our sovereignty. Dr Abdul Hafeez Sheikh has been brought in to tide through this tough transition to financial freedom. Self-reliance, austerity, simplicity, honesty has to be restored as it was till 1958.
Liaquat Ali Khan the first PM announced his resolve of not building his own house till every Pakistani had a roof above his head. Imran Khan as the 22nd PM has decided to build homes for the downtrodden segments of the society. This era of artificial growth based on borrowing (1958 to 2018) must stop.
As a nation, we must come out of this debt trap to focus on nation building which was disrupted by unelected and manipulated leadership. Although we were unable to become the first Asian Tiger, it is never too late. Our missed chances of glory are still achievable provided the leadership remains on track. Debt is death for a nation, in order to move forward we must come out of this man-made trap.
Dr. Farid A. Malik is Ex-Chairman, Pakistan Science Foundation. The article was first published in The Nation and has been republished with the author’s permission. The views expressed in this article are the author’s own and do not necessarily reflect Global Village Space’s editorial policy.