The Debt Trap: IMF, World Bank and Pakistan: Economistan

14th August, a day we celebrate as our independence day is fast approaching amidst ever worsening financial condition and ever growing debt burden. The tradition of taking debt for stimulating growth in our economy was started in early years of Pakistan but these debts have today become a bane rather than a boon for our beloved homeland. As Pakistan entered 21st century, its Public debt exceeded 90% of its GDP, over 600% of its annual revenues, and debt servicing accounted for over half of current revenues. In 2001, Pakistan was the only country in South Asia to be classified as a severely indebted country by the World Bank.

Historically, the Government of Pakistan has faced budget deficit since 1947. Early debts were taken during Ayub regime for building dams and industrialization. It was only during this time that this money acquired from abroad was utilized correctly. However, situation changed after this era and with the loss of East Pakistan and much of our economy after 1971 the events took drastic turn. During the later era’s decisions to acquire debts and to increased budget deficit were influenced by political needs rather than economic priorities. Another huge problem that Pakistan faces even today is the continuation of policies especially positive economic reforms which are often reversed only because they were introduced by a political rival while Pakistan’s government expenditure has been increasing constantly in last four decades.

Such uncontrolled expenditures mainly started during Zia era when foreign aid started to flow in due to Afghan war. The 11 years era of General Zia can be considered worst era of Pakistan’s history not only due to it’s political and socio-cultural disasters it yielded which Pakistanis are still facing today but also due to it’s economic policies. During Zia era the total national debt grew at an average rate of 17.7%. The influx of foreign aid did little to help the debt situation as it soared to 630 billion rupees. In fact One contribution to this was the costly non bank borrowing, e.g. from national saving schemes, and the ratio of debt to GDP kept rising. Interest payments on debt also rocketed to about 28 percent of revenues....

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