printer printer Click on the green icon on the right
Drowning in debt. IFIs should cancel all foreign debts of Pakistan owed to bilateral and multilateral creditors
by Abdul Khaliq
19 October 2010

Pakistan is facing the worst-ever natural disaster of its history. About 20 million people are displaced due to recent devastation caused by the angry floods. The communication infrastructure has been totally ruined; roads, bridges and railway tracks have been destroyed. The economic loss runs in billions of dollars. Flood-hit people are in urgent need of basic amenities; shelter, medicines, clothes, proper food and healthy environment, etc. Pakistan is in real and worst human and economic crisis.

The country’s already creaky economy has been pushed to the verge of ruin by this calamity. With foreign aid only trickling in, the impoverished country has been forced to take out further loans while pleading for outstanding ones to be restructured.

The current external debt of Pakistan stands at $ 55 billion. That figure will jump to $73 billion in 2015-16, as debts that were rescheduled after 9/11, in exchange for Pakistan’s co-operation in the war on terror, will come back into action. Besides this, Pakistan is paying over $ 3 billion on debt servicing every year on average. As for the FY 2010, this amount is $ 5. 640 billion, which Pakistan will be paying to its creditors amid 20 million people crying for most urgent basic needs; food, clothes, shelter, health and education.

Moreover, strict conditions under SBA agreement with IMF are adversely affecting the lives of working classes in Pakistan. These conditions include reducing budget deficits, eliminating fuel and electricity subsidies, and increasing indirect taxation.

The international institutions, including World Bank and ADB, had offered $3 billion in new loans to Pakistan to withstand the disaster, rather than giving grant-aid. This will only add to Pakistan’s enormous and unsustainable debt of $ 55 billion debt.

Pakistan’s debt repayments already amount to three times what the government spends on healthcare — in a country where 38 percent of under 5-year-olds are underweight, only 54 percent of people are literate, and 60 percent live below the poverty line.

Thus, under the present circumstances, it is almost impossible for the government of Pakistan to meet basic requirements of its millions of displaced people as the international response to Pakistan is far less than the Tsunami and Haiti disasters — the world community has only provided $229 million to Pakistan so far. This translates into $16.16 for each affected Pakistani person as compared to $1,087 every affected person in Haiti and $1,249 per affected person in the Indian Ocean tsunami.

The total number of people affected by the floods (20 million) exceeds the combined total in three recent mega disasters—the Haiti earthquake, the 2004 Indian Ocean tsunami and the 2005 Kashmir earthquake.

The devastating floods hit the debt-ridden Pakistan at a time when it is already facing the music of joining US-led war on terrorism. Struck by this double penalty, the country is rendered unable to cope with this horrific calamity and its long term impacts on economy.

It is pertinent to mention that major portion of Pakistan foreign debts was obtained during the dictatorial regimes — the martial law regimes of General Ayub Khan, General Yahya Khan, General Ziaul Haq and Gen. Musharraf. About 80 percent of the total foreign debt was contracted during dictatorial and autocratic regimes.

The people of Pakistan did not benefit from the foreign loans provided to General Ziaul Haq and which were provided by Western countries only after the Soviet invasion of Afghanistan. The loans were spent on building the ’infrastructure’ for running the Afghan jihad.

In most cases, these loans were spent against the wishes of the people and benefited only a specific segment of society. This debt is illegitimate and is not binding on the people of Pakistan and the current democratically elected government has legitimate right to refuse these loans.

Where debt campaigners in Pakistan are demanding its government to refuse foreign debt payment, we urge debt campaigners to put pressures on the creditors, governments and international institutions to affect an immediate freeze on Pakistan’s debt repayments. We also urge the lenders to extend Pakistan grants, rather than loans, which are essential for Pakistan to develop the means to withstand such disasters in future.

It is nothing short of criminal that a country as poor as Pakistan is bled of resources every year to repay borrowers who extended unjust loans to that country over decades. It is vital that desperately needed emergency aid is not effectively swallowed up in debt repayments and a freeze on such payments must be called immediately.

If Pakistan is to build up the infrastructure to withstand such appalling disasters in future it must be freed from its debt trap. A debt audit is needed and those debts found to be unjust and unbeneficial must be cancelled immediately to give the country a fresh start. Most certainly supposedly anti-poverty institutions and IFIs should not be making Pakistan’s debts even worse.

This is the time that government of Pakistan and civil society organisations must come up and demand the governments and IFIs: The issue of Pakistan debt is fast gaining national and international importance. Debt campaigners are taking interest in the debt issue of Pakistan, especially in the context flood calamity. That is why October 14 has been declared as solidarity day with Pakistan during the on-going Global Week of Action against Debts and IFIs, going to observe from 7-17 October.

Debt levels around the globe have also increased dangerously, as a result of policies designed to subsidise the wealthy and favour free flow of capital in a market that was supposed to be self-correcting. A number of other debt related issues and IFIs will be taken up during this week. Together with the food, climate, and fuel crises, the economic crisis led to massive job and wage losses, cut-backs in the provision of basic human rights to healthcare, education, housing, water, and social security, etc.

The debt campaigners in Pakistan will also be organising actions and activities to highlight the issue. The focus of anti-debt campaign is calling upon the IFIs and creditors to:

1. Cancel all foreign debts of Pakistan, owed to bilateral and multilateral creditors.

2. Immediate freeze on foreign debt repayments of Pakistan.

3. Immediate halt to structural adjustment program and IMF-led economic reforms

3. Ensure that emergency disaster-related assistance be in the form of grants instead of loans.

4. Lead efforts to establish up-front funding for climate change-related disaster preparation. With early warning systems, risk analysis and preparation, Pakistan could have reduced the damage caused.

The writer is Focal Person, Campaign for Abolition of Third World Debt, Pakistan (cadtm.pakistan@gmail)

Published by the pakistani newspaper The News on Sunday, on 17th Oct, 2010

Abdul Khaliq

CADTM Pakistan