Published in the Express Tribune
That militancy is the biggest near term threat Pakistan faces is obvious. What may not be obvious is that the roots of militancy go deeper than just Pakistan’s links with the Afghan Talibans or its support of various other militant groups. Read more »
Occupy Seattle protesters, an off-shoot of the Occupy Wall Street movement, scuffle with police officers during a May Day rally and anti-capitalist march in Seattle. Read more »
Picture is a worth a thousand words
Pakistan’s foreign exchange reserves hit a record high of $18.25 billion during the week ended July 2, following inflows of $411 million from World Bank and Asian Development Bank under programme loans, a senior central bank official said on July 8, 2011. Is this a reason to cheer? Read more »
First published October 2010, Updated April 2011
Admiral Mike Mullen (first from left), the U.S. Joint Chiefs of Staff, Pakistani Army Chief Gen. Pervez Kayani (third from left) and next to him, the I.S.I. Chief Ahmed Shuja Pasha (then Major Gen. and Director General Military Operations) aboard the U.S. naval carrier Abraham Lincoln Read more »
An edited version of this article appeared in DAWN of March 21, 2011
The Army establishment may or may not have won this round of the turf battle with the CIA Read more »
The following story has been published by Washington Post today. Bear in mind that after eight and half years of the “War on Terror”:
1. We do not know anything about Osama bin Laden, 2. Mullah Omar is still at large, 3. Hakim ullah Mehsud is alive, 4. Mullah Radio (Fazullah) has escaped, and Pakistan’s miliatry is getting advanced version of F16s. It should be noted that the Pakistan’s Army chief had stated on March 25, 2010 in Washington that the military was willing to forgo its requests for hardware to ensure that Pakistan’s energy and economic needs were met. Read more »
Security issues and foreign policy is fine stuff. Aid never helped us nor it will now. We must pay attention to water security, energy, and overall economy. We have a serious intellectual deficit. Instead of consulting mediocre World Bank officials, why not engage some one like MIT Professor Raghuram Rajan for occassional consultation. But Why? He is an Indian. That is irrelevant. He is currently an eminent professor of economics at MIT and a former chief economist of the IMF but with a different perspective. Please read the following news story: Read more »
[Note: Pakistan's Low Tax to GDP Ratio is as important an issue as any for the country]
WASHINGTON: US Secretary of State Hillary Clinton has urged wealthy Pakistanis to pay a larger share of taxes to reduce their country’s dependence on foreign aid.
In a testimony before the Senate Foreign Relations Committee, the top US diplomat reminded rich Pakistanis that they had a duty to enable their government to fund schools and hospitals and to spend more on other social projects by paying taxes.
“The very well-off” in Pakistan “do not pay their fair share for the services that are needed, in health and education primarily,” she observed. Read more »
By Lyubov Pronina
Dec. 5 (Bloomberg) — India will remain Russia’s main arms export destination this year, said Mikhail Dmitriev, head of the Federal Service of Military and Technical Cooperation. Read more »
DAWN of November 18, 2008
PAKISTAN is the only country outside Europe to have gone to the IMF for a bailout. While the western financial meltdown hit the US and Europe hard, no country in Asia, Latin America, the Middle East or even Africa has so far needed the IMF’s help. Read more »
In the hunt for a new strategy in Afghanistan, U.S. military commanders are studying the feasibility of recruiting Afghan tribesmen (LAT) to target Taliban and al-Qaeda elements. Taking a page from the so-called “Sunni Awakening” in Iraq, which turned Sunni tribesmen against militants first in Anbar Province and then beyond, the strategic about-face in Afghanistan would seek to extend power from Kabul to the country’s myriad tribal militias. Gen. David Petraeus, the former top commander in Iraq who now heads U.S. Central Command, has talked openly of this ground-up approach, telling the New York Times that “in certain areas local reconciliation initiatives hold some potential.” Read more »
It now is highly likely that the United States will face several quarters of negative growth to be followed by several years of low growth. Less and less are we hearing of V- or U-shaped economic recoveries. The immediate future looks like an L: sharp contraction followed by not much in the way of a quick rebound. Read more »
Given the current ‘political realities’, Pakistan seems to have little option but to go to the IMF. But the truth is Pakistan can raise $5 billion in the next 30 days if it wants to; even if Saudi Arabia does not extend oil credit facility.
The United States wants Pakistan to work with the IMF and the government does not want to upset Washington. Otherwise why would it sit on proposals (like the exchangeable bonds and the securitisation of remittances) for months that could have raised a few billion dollars? The proposal from the Chinese to buy minority stake in the National Bank of Pakistan, likewise, was put in cold storage. Read more »
Pakistan’s current economic meltdown is a crisis of competence if judged in light of the recent past. In the context of history, it represents a colossal failure of the establishment’s long-term foreign and economic policies. Pakistan desperately needs four to five billion dollars to avoid default on its external obligations. The government is working on the multilateral institutions and Friends of Pakistan to raise this sum failing which it will go to the IMF. The government does not want to borrow from the IMF to keep its hands relatively ‘free’ and avoid the likely political fall out from following the IMF’s prescriptions. Does Pakistan have an option? Unfortunately, no. Read more »
The 43 nations participating in the Asia-Europe Meeting summit reconvened for a second day of meetings in China’s capital Saturday, a day after adopting a statement calling on the IMF and similar institutions to help stabilize struggling banks and shore up flagging share prices. Read more »
By David Rothkopf
Published: October 21 2008 18:59
For weeks, the headlines have been dominated by banks faltering and countries propping them up. But we have entered a new phase of this crisis in which countries themselves are starting to struggle. Where these battered countries are first turning for help illustrates that what we are witnessing is different from anything we have seen before. It also lays out a clear challenge for those who are hoping the global financial summit announced over the weekend will produce an effective Bretton Woods II, a new international system reflecting a new financial order. Read more »
Sat Oct 18, 2008
ISLAMABAD (Reuters) – The top U.S. diplomat for South Asia began a series of meetings with Pakistan’s leaders on Saturday, with the U.S. ally facing a looming balance of payments crisis as well as rising Islamist militancy. Read more »
Following a packed weekend of meetings here, many of the world’s top economic officials are returning to their home countries Monday to deal with the next stage in the ongoing financial crisis. Read more »
October 15, 2008
President Zardari’s visits China at a time when the global economic power balance is undergoing a historic shift. “End of US era – now China calls the tune”, declares a headline of Sydney Morning Herald, Australia’s oldest and most respected newspaper. “Can Chinese Cash Save the World’s Banks? “, runs a lead story in Time. “Is this the end of the American era?” is the title of an op-ed by noted historian Paul Kennedy in the UK’s Sunday Times. Read more »
From The Wall Street Journal, THE WEEKEND INTERVIEW Asif Ali Zardari
OCTOBER 4, 2008
Asif Ali Zardari used to sport a full moustache, jet black and rakish in the style of the avid polo player he once was. But sometime in the past year he trimmed it short and let its salt-and-pepper colors show. It befits the sober role he has now assumed, at 53, as the president of Pakistan, probably the world’s most difficult — and dangerous — political job. Read more »
Heritage Foundation
September 26, 2008
| On consecutive days in September, China’s State Administration for Foreign Exchange (SAFE) found itself in a tough spot: a headline. First, the Financial Times reported that SAFE agreed to buy Costa Rican bonds in exchange for a switch in recognition from Taiwan to China. The deal, however, was contingent on Costa Rica blocking public knowledge of the arrangement.[1] Then Thomson Reuters cataloged SAFE’s small stakes in 45 British firms, including National Grid and British Energy—at least $17 billion in investments SAFE refused to discuss.[2] Read more » |
By Robert M. Hathaway
September 26, 2008
The recent inauguration of Asif Ali Zardari as Pakistan’s president offered the possibility – but hardly the certainty – of a new beginning for Pakistan, and a new era in US-Pakistan relations. Read more »
The following story published by the Center for Public Integrity, Washington on May 31, 2007 raised serious questions about the utilization of USAID to Pakistan. The Center is a consortium of investigative journalists and does not accept donations from governments. The report said:
“Pentagon reports that ICIJ obtained through Freedom of Information Act requests show that Pakistan is the No. 1 recipient of these funds — receiving more than 10 times the amount that went to the No. 2 recipient, Poland — and that there is scant documentation of how the money was used.”
The following is this report’s full text. Read more »
From DAWN of May 17, 2008
By Anwar Iqbal
WASHINGTON, May 16: As much as 30 per cent of the US aid for Afghanistan and Pakistan is siphoned off as overhead expenses before it reaches the region, US lawmakers have been told. Read more »
WASHINGTON (AFP) — The United States has poured nearly 40 billion dollars in aid to South Asia since the September 11 attacks but the terror threat from the region remains a top problem, a congressional hearing was told Wednesday.
“South Asia is arguably the place from which America faces the greatest terrorist threat,” said Gary Ackerman, the head of the House of Representatives panel on issues relating to the region that includes Pakistan and Afghanistan. Read more »
Pakistani troops taking up positions this month at a vantage point over the Swat Valley, where militants have fought the army.
In interviews in Islamabad and Washington, Bush administration and military officials said they believed that much of the American money was not making its way to frontline Pakistani units. Money has been diverted to help finance weapons systems designed to counter India, not Al Qaeda or the Taliban, the officials said, adding that the United States has paid tens of millions of dollars in inflated Pakistani reimbursement claims for fuel, ammunition and other costs.
“I personally believe there is exaggeration and inflation,” said a senior American military official who has reviewed the program, referring to Pakistani requests for reimbursement. “Then, I point back to the United States and say we didn’t have to give them money this way.”
Pakistani officials say they are incensed at what they see as American ingratitude for Pakistani counterterrorism efforts that have left about 1,000 Pakistani soldiers and police officers dead. They deny that any overcharging has occurred.
The $5 billion was provided through a program known as Coalition Support Funds, which reimburses Pakistan for conducting military operations to fight terrorism. Under a separate program, Pakistan receives $300 million per year in traditional American military financing that pays for equipment and training. Read more »
CONCORD, N.H.Dec. 17—Presidential hopeful Joe Biden on Monday told Pakistan’s President Pervez Musharraf there will be consequences if his elections are in any way shoddy. Read more »
By Yousuf Nazar
PAKISTAN’s official external debt has not gone down since 1999 although it has received record aid, investments, and remittances flows. It has gone up to $36.9 billion from $33.6 billion in 1999 despite receiving at least $10 billion in economic, military and development aid from the United States, over $6 billion in privatisation proceeds, and a relief of $1.6 billion in loan write-offs by foreign governments during the last seven years.
The rescheduling of Paris Club debts provided an additional relief of $ 1.2 to $1.5 billion annually in terms of debt service payments. Is the government’s debt management policy as sound and successful as it claims or a historic opportunity to restructure country’s high debt levels has fallen victim to political expediency or a false sense of achievement?
Even after having received such generous assistance, Pakistan external debt to GDP ratio is 28 per cent – slightly worse than Africa’s 26.2 per cent, which also happens to be the average for all the developing countries. The average external debt to GDP ratio of all emerging markets declined from 42.1 in 1999 to 26.2 per cent in 2006, underpinned by strong growth in the global economy and record investment flows into the developing countries.
It is argued that the former Prime Minister Nawaz Sahrif left a heavy external debt burden at 53 per cent of the GDP and the current levels represent a substantial improvement. The net debt flows (disbursements minus repayments) into Pakistan during 1990-1999 aggregated $5.4 billion compared to $1.1 billion during 2000-2006.
Hence, the growth in the debt slowed down during the last seven years. However, post-9/11, Pakistan received generous foreign aid as well as much higher levels of foreign direct investment. Remittances averaged around $4 billion a year during 2003-2006 compared to an average of $1.5 billion in the 1990s.
Nevertheless, Pakistan’s liquid foreign exchange reserves, after jumping to $10 billion-level in 2002-03, have more or less stayed around that level on average. The foreign exchange reserves of even Sub-Saharan countries (excluding South Africa and Nigeria) doubled to $50 billion during the same period. Brazil and Argentina repaid all of their $25 billion debt – by utilising their foreign exchange reserves – to the IMF in early 2006 to rid their countries of its influence.
In contrast, Pakistan has not able to reduce the external debt burden in absolute terms or build up its foreign exchange reserves. In fact, it has become the fourth largest borrower of the World Bank and the fifth-largest recipient of American aid to foreign nations. This shows its continued reliance on foreign governments and multilateral institutions – despite declarations of economic sovereignty – and a failure to mobilise domestic resources to pay for the development expenditure. Leaving aside all the technicalities and vague statements, there has been no convincing explanation for not having used the privatisation proceeds to reduce the external debt in a completely transparent manner.
Some policy makers argue that it is acceptable to borrow if the borrowing is for productive purposes. That is theoretically correct. However, if the borrowing record is littered with corruption and wasteful spending, and major sectors of the economy (large agriculturists, stock brokers, property barons, etc.) do not pay any tax at all, the proposition becomes quite debateable and the motives questionable.
This is a critical issue for Pakistan’s political economy because the subject of external debt has been a highly political one for most of Pakistan’s history since it has relied heavily on the US and institutions under the US influence for its external financing needs. So have many other developing countries – though not necessarily to Pakistan’s extent – in the past but most no longer do. This type of aid has been associated with corruption, waste and increasing debt burdens. It has even been viewed as a payoff to the third world dictatorships for their support and aid in helping the US in achieving its foreign policy objectives that have often clashed with the national interests of the borrower countries.
For example, the recently proposed US law, aimed at punishing oil companies that deal with Iran, will make it even more difficult to construct the Iran-Pakistan-India gas pipeline. Pakistan must import natural gas from Iran to meet an imminent shortage during the next few years. On the other hand, recent moves in the US congress threaten to cut military aid to Pakistan if it fails to “do more” and stop the Taliban insurgency from its tribal areas.
The government claims that it no longer borrows from the IMF and does not carry around a begging bowl. This is quite misleading because it has been borrowing more and more from other multilateral institutions like the World Bank (WB) and the Asian Development Bank (ADB). The borrowing from multilaterals has outpaced the borrowing from the Paris Club since 1999-2000. Its share in total public and publicly guaranteed debt has increased from 37.5 to 50.2 per cent in 2006.
Consequently, whilst the government has made progress in raising money from the international capital markets – a welcome and positive development – official sources still account for 90 per cent of Pakistan’s external debt, including the WB/ADB [48 per cent] and foreign governments [38 per cent]. IMF’s loans rarely exceeded 5-6 per cent of total external debt as it normally provided the balance of payments support and not long-term loans that constitute the bulk of our external debt.
The present government has criticised the previous governments for the accumulation of almost $18 billion debt in the 1990s and increasing Pakistan’s debt burden. While it is true that the debt accumulation in the 1990s was large, critics of the civilian governments conveniently overlook a key statistic: 77.2 per cent of the gross disbursements during 1990-1999 were utilised to repay the old debts. The debt-service to gross disbursement ratio jumped to 82.8 per cent during 2005-2006. The continuing increase in this key ratio throughout the 1990s and even during 2000-2006 indicates that more and more of new loan disbursements were used to repay the past debts; a significant percentage relating to the borrowings during the previous military regime of General Zia-ul-Haq.
Pakistan’s total external debt that stood at $8.7 billion in 1978, reached about $22 billion (50 per cent of the GDP) by the end of the 1980s. That Pakistan had to borrow more later in the 1990s just to service some of the old debts indicates that the loans were not properly utilised as they did not contribute to the development and therefore to the debt servicing capacity. This raises serious questions about the whole wisdom of politically motivated borrowings from the foreign governments and the institutions under their control.
It is therefore fair to ask whether any cut in aid from the foreign governments would be of real significance from a development perspective and particularly in a global economic environment when the private capital flows (through foreign direct investments and international capital markets) have become the dominant source of financing to the developing countries. As a group, they reduced their total external debt to the foreign governments and multilateral institutions (WB, IMF, ADB, etc.) through net repayments of $48 billion in 2006 whilst attracting a staggering $502 billion in net private capital flows.
Pakistan’s vicious cycle of borrowings from foreign governments and multilateral institutions, graft, waste, and accumulation of more debt to repay the old debts leads one to believe that the rulers have been putting excessive burden on the people and mortgaging their future by borrowing more and more while indulging in wasteful and unproductive spending while the ‘big fish’ get away with not only benefiting from the “development projects” financed by external borrowings but also with paying no taxes.
Pakistan’s foreign (or hard currency) debt to total debt (that is, including domestic debt) ratio of 47 per cent is high compared to an average of 28 per cent for emerging economies. Given our long-term track record of using foreign debt to indulge in wasteful expenditure, it would be in the best national interest to set up a special fund (in a hard currency, be it dollar or euro) to accumulate all the privatisation proceeds and use that for the early retirement of our external debt. Some countries, like Russia, have set up hard currency stabilization funds to provide for the rainy days.
However, this would be just one among a series of measures needed to reduce dependence on foreign debt. We must cut imports and reduce the rapidly deteriorating current account deficit that has prevented a build-up of foreign exchange reserves since 2003. We must also strive to increase the tax- to- GDP ratio from 10 per cent (one of the lowest) to 17 per cent within the next five years instead of making far-fetched 10-year plans.
The world today is experiencing unprecedented economic growth with huge pools of liquidity seeking investment opportunities. If Pakistan can reduce its macro imbalances by reducing foreign debt and mobilising domestic resources, it can attract a much greater level of foreign direct investment and achieve greater economic freedom. Shall we rise to the challenge or we will once again squander away a historic opportunity?
