Pakistan's Path to Economic Stabilization and Self-Reliance

 Is IMF a Debt Trap?

Is IMF a debt Trap or its a force of stabilization it depends upon the recipient country. If a country like Pakistan that has taken more than 23 loans and it is not able to reform. Eventually the IMF program will become a debt Trap but we may not have to blame the IMF it is our fault, these are our external financing requirements that we go after every 4-5 years to the IMF. So blaming IMF, our own problems will not be corrected, for this financial years we have the external financing requirements of 34 Billion dollars that include 22-23 billion dollars debt repayments and then about 12 billion dollars current account deficit. If you don’t have huge debt requirements any payment requirements, if you don’t have a huge current account deficit so you don’t go to the IMF you are not in a debt trap. The problem is it is not only the question of the IMF, when we take budget support loans or the balance of payment loans from the world bank ,ADB the IMF and we do not put those loans into productive sectors for examples, if you take foreign loan and then you use that money to disperse monthly cash grants to the BISP beneficiaries then from where you will pay back the loans.

Irrespective of how good or bad the purpose, the purpose may be good but the use of money is bad, here that is the problem. You cannot ask the BISP beneficiaries to give returns on the free grants which is the decision of the government of Pakistan whichever party is the power that where they use the money, but if you take that money that foreign loan and build a motorway, a Power Plant then you will have a constant and permanent source of earning by using that earning you can return the loans so there will not be debt trap. So blaming the IMF for the debt trap will be a wrong approach.

How Pakistan Can Escape this Debt Trap? 

Well coming out of the debt trap is a long process it will not begin today it may not begin tomorrow. We are right now in a serious debt trap and how to come out it will depend upon the policies that the government of Pakistan adapts over a long period. You would need to increase your exports and everyone says that but by increasing the exports does not mean giving hundreds or 150 billion rupees a year subsidy to the textile exports industry. That is a wrong approach to increase the exports. You may like to look around the world and see what India is doing. India is not only relying on the textile exports, India is relying on the IT exports, India is relying on the software exports. What we people are doing we think that increasing exports for coming out of the debt trap would mean giving more money to the textile exporters in shape of the energy subsidies, almost free loans at 1% of the interest rate, the. Giving them almost tax-free status by charging only 1% of their export proceeds as a total and final text liabilities. To increase exports you have to diversify the exports basket one of the criticism that comes from the European union on Pakistan “look we have given you the GSP plus status and what you did with that you mostly relied on the same traditional export basket and then you say that we are not doing enough” which is Pakistan that is not doing enough. 

The second thing to come out of the debt trap is you need to increase the foreign direct investments, although there are two opinions about the foreign direct investment. One is that immediately it will provide some relief then eventually you’ll have to pay the dividends to the foreign investors and that’s a problem again in Pakistan right now. So there are two opinions, the third source which is the final remittance you may take many measures to increase your limit remittances, still because of the huge gap between the formal exchange rate and the informal rate money that use to come through remittance is a major portion of it is going out towards the “hawala” where actually the dollar is not transferred but dollar equal amount is being paid to someone in Pakistan. Yeah the money remains a problem debt is also a problem, at the same time you need to focus on more productivity sector. 

At least Pakistan should be able to to make its material that is also met by imports. You have to reduce imports because we are also financing our imports by taking more loans so these are not sustainable way until we change kind of our policies that encourage imports, we will be in a debt trap.