ISLAMABAD: The budget documents and the figures available in Economic

Survey of Pakistan for 2008-09, revealed that Pakistan has now trapped
into vicious circle of debt repayments as debt liabilities have been
exceeding the estimates of total foreign receipts.

In the fiscal year 2009-10, the government is expecting a supply of $2.5 billion
dollars as loans from donor countries and multilateral agencies, whereas the
total allocation for debt repayments and servicing of foreign debt in 2009-
10 stands at $2.53 billion dollars. Hence, the government is raising debt to
pay debt and the relief impact of the expected foreign loan is difficult to see.

As on June 2009, Pakistan’s external debt liabilities were $50.1 billion, whereas the
domestic debt liabilities were estimated at $46.97 billion and the total floating debt,
which consists of short term domestic borrowing instruments such as Treasury bills,
was estimated at $24 billion dollars. The total outstanding debt is therefore $119.9
billion dollars; roughly 57.6 per cent of the total Gross Domestic Product (GDP).

The Prime Minister Advisor on Finance Shaukat Tarin in a post budget press
conference gave the break up of the $2.5 billion dollars which the government has
been expecting in next fiscal year. According to Tarin, the government has been
expecting one billion dollars from USA under the Kerry Lugar bill support, $840
million from International Monitory Fund (IMF), $800 million from World Bank (WB),
$600 million from Asian Development Bank (ADB) and $23 million from Islamic
Development Bank (IDB).

The government also has commitments of $2 billion for FY-1009-10 from the Friends
of Democratic Pakistan (FODP) which will raise the estimates of foreign receipts to
$4.5 billion. However, the government itself is unsure about the realisation of $2
billion pledges from FODP. The advisor to the PM on Finance is on record as saying
that the government will pursue an additional $4 billion loan from the IMF in case
payments fail to come through.

The government has already entered into an IMF program and signed a loan
agreement of $7.6 billion dollars, out of which the country has received the first
tranche of $3.1 billion in November 2008, second tranche of $847 million in March
while the third tranche of $840 million is expected in the last week of June this year.

Interestingly, the IMF first loan tranche of $3.1 billion and during the same
timeframe, the government has paid $3.65 billion on account of debt repayments;
$550 million more than the IMF loan.

Domestic debt:

As on June, government’s total domestic debt was estimated at $46.97 billion and
28.7 per cent of GDP. For FY-2009-10, the government has allocated $7.79 billion
for servicing of domestic debt whereas the federal share of allocation for Public
Sector Development Program (PSDP) is $5.48 billion. Hence, the allocation for debt
servicing is $2.3 billion more then the federal share of development budget. In FY-
2008-09, the government has paid $7.2 billion dollars on account of domestic debt
servicing where the total expenditure on development was $2.7 billion. It became
obvious that the debt servicing is badly affecting expenditures on development.

Debt mix:

Pakistan is under obligation to pay back loans from a wide variety of banks and
other agencies. According to the Economic Survey, the share of the Paris club in
the total external debt as of May stood at 27.2 per cent, Multilaterals 43.5
per cent, under bilateral agreements with donor countries 3.9 per cent,
short-term loans 4.3 per cent, private non-guaranteed 6.6 per cent, IMF
8.4 per cent, while foreign exchange liabilities were 4.3 per cent.

Terms and Conditions:

The recently signed agreement by the Economic Affairs Division concludes that the
terms and conditions of foreign loans from multilaterals have become more
stringent. In recent agreement signed between Pakistan and the World Bank the
maturity period of external debt decreased from 31.6 years in 1970 to 19.7 years,
while the grace period declined from 11.9 years to 5.6 years. The interest rate
increased from 2.8 per cent to 6.0 per cent, while the extent of grant element
decreased from 59.2 per cent to 29.7 per cent.

Debt Policy:

It is shocking to note that with a debt burden of 56 per cent of GDP, the country has
no established borrowing policy. To finance a project what a government
department needs is a borrower. If a borrower is agreed to finance a project, the
department goes to EAD and inks a loan agreement irrespective of judging the
importance and productivity of project. This has given rise to numerous allegations
of malfeasance, which are under the scrutiny of the Planning Commission. Although,
there has been a separate full fledged Debt Office in the Finance Division header by
a Director General since 2001, the department has not been able to present a
comprehensive debt policy.

Per head debt burden:

Keeping in view these statistics, Pakistani citizens per head debt is about 55.2
per cent of the per capita Gross National Income (GNI).

Pakistan’s debt is about five times more than total average annual exports
earnings, six times its budgetary revenues and sixteen times more than foreign
investment inflow.

With total population of 165 million, each Pakistani at end March 2009 owed about
$591 in public debt (domestic and external debt).