A case for debt cancellation
Cosmetic measures like brief rescheduling are simply not workable
By Abdul Khaliq Shah
Rich countries, creditors and lending institutions got together for the third time in as many months to discuss flood-ravaged Pakistan. As Islamabad hosted the Pakistan Development Forum (PDF) from 14/15 November, IFIs seemed determined to build up further pressure on Pakistan not to deviate from economic reforms.
The question that came under discussion was what the debt-ridden and flood-hit Pakistan could expect from the meeting. The government seems confused on the question of foreign debt. It is not ready to invoke the international protocols and precedents which are quite favourable to plead its case with creditors. Although government wants civil society to raise the question of debt cancellation at national and international forums it is hesitant to plead the case of foreign debt with the required level of commitment.
It is good that for first time a formal step at the state level was taken when the senate unanimously passed a resolution on November 3, 2010 urging the donor countries and IFIs to write off Pakistan’s debt. However, the very language of the draft resolution was apologetic, seeking forgiveness of the loans on charitable basis instead of demanding cancellation of debt as the right of Pakistan. This is an indicator that the government cannot take the risk of offending the IFIs. If the government is serious, there should be no problem to table a resolution in the National Assembly as well as in provincial assemblies for a wider discussion.
Presenting and passing resolutions is definitely not enough but at least that would be a first step in the right direction. Government will have to take a bold position on the question of foreign debt. The civil society has been demanding international donors and IFIs since long to cancel Pakistan’s debt. Now it is up to the government to utilize the ready support of the civil society to challenge the debt domination. The government did not raise the issue of debt at Friends of Democratic Pakistan (FoDP) meeting in Brussels earlier.
The need of the hour is Pakistan pleads its genuine case for debt cancellation with the donor community. While sharing reprioritisation of its development strategy with lenders; Pakistan should clearly tell the creditors and lending institutions to fulfill their global humanitarian responsibility by canceling Pakistan’s debt. Rescheduling or brief moratorium does not go far enough as it will not help mitigate Pakistan’s terrible economic woes. There should be a clear demand that the IMF-led structural adjustment programme and economic reforms should be suspended forthwith and any new funding should only be in the form of grants instead of new loans.
At this juncture, Pakistan should also demand multilateral and bilateral donors that Official Development Assistance (ODA) be transformed into grants in reparation in the light of the commitment made by the industrialized countries at the 1992 Rio conference. By all means, Pakistan has a solid case to seek major debt relief on technical, economic and moral grounds.
We are passing through hard times, our 20 million populations is affected. The first and foremost duty of the government is to address urgent needs of the people in need. We cannot afford to starve our people just to keep repayments to creditors. It is pertinent to mention that Pakistan spent a whopping $4.48 billion during the last financial year on its debt repayments and its budgeted debt repayment servicing for FY 2010-11 is more than double the funds governments from across the globe have pledged in grants for helping the flood-hit communities.
It is not something unusual that Pakistan would be seeking debt relief on genuine grounds. Haiti is a recent example. The country was offered relief after the 2010 earthquake when the IMF cancelled $366 million debt owed by Haiti. There are a number of examples when international loans were either repudiated or cancelled under extraordinary circumstances.
International pledges vis-à-vis the degree of destruction is just peanuts. The loss runs into billions of dollars. The government puts it as $43 billion. It will take years to rebuild Pakistan in the wake of lukewarm international response the woes of the flood hit communities are not going to be lessen. Under these circumstances, Pakistan cannot afford to continue debt servicing and needs all its available resources at hand to divert for relief and rehabilitation of the flood hit.
It is shameful that at this juncture of extraordinary humanitarian crisis, the international creditors and IFIs are not ready to offer Pakistan any relief. Rather, they are continuously pressing for repayments on debts. Instead of giving relief they are offering more loans. But the new lending will push the country’s debts to a new high and benefit only the lenders while ‘mortgaging’ the future of Pakistani generations.
Pakistan is already under a huge burden of $ 55 billion external debt, which includes Paris Club (bilateral debt) component of about $16 billion and multilateral component of slightly less than $32 billion (including the existing IMF loan of $8.077 billion). It has gone up by almost 50 percent from $36.40 billion in just four years. This debt burden will amount up to $ 73 billion in 2014, when the loans rescheduled during Musharraf regime, after 9/11, will be back in action. The debt stock, therefore, will continue to rise in the coming years at a faster pace than in the past.
Cosmetic measures like brief rescheduling are simply not workable. A major debt cancellation is only durable remedy. The situation not only calls for immediate announcement of significant debt relief by IFIs and donor countries but also demands of Pakistan government of taking extra-ordinary austerity steps.
We understand that demand of foreign debt cancellation lacks legitimacy unless we put our own house in order. For that the government will have to explore ways and means of immediate resource generation/reallocation, like the one-time flood tax, reduction in military budget, long-term reforms like agriculture reforms and direct taxation system.
Steps like immediate relief to the working classes by providing social security, progressive taxation system to bring the rich and affluent into tax net and fool proof mechanisms to ensure accountability and transparency of utilization of flood funds are perquisite for the government to prove its commitment with the cause it has been claiming. These kinds of much-needed measures would really helpful to make the case strong for Pakistan’s foreign debt cancellation.
The author is Focal person, Campaign for Abolition of Third World Debt (CADTM) Pakistan