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Call for Debt Audit Commission to dig out illegitimate loans

Publishing Date: October 14th 2011

Stop Debt-Servicing; Divert Money For Flood Affectees & Dengue Patients
Civil Society members observe Global Week of Action against Debt & IFIs
Press Release

LAHORE: “Debt continues to weigh down Pakistan, preventing it from being able to break out the endless cycle of poverty and injustice. Although Pakistan has ended SBA agreement With IMF, yet it is not out of woods. Debt scenario is getting bad to worse. The public debt has soared by a whopping Rs.120 billion just between July 1, 2011 to-date in the wake of depreciation of Pak currency against US $. The country’s public debt has risen to Rs. 11 trillion, which includes foreign debt of Rs.4500 billion ($ 60 billion) and domestic debt of Rs. 6500 billion. A comprehensive parliamentary and independent debt audit commission, with constitutional cover is need of the hour to identify the illegitimate part of the Pakistan external debt and suggest ways and means to grapple with the situation”.

These views were expressed by speakers at a demonstration, in front of Lahore Press Club, Thursday (14 October 2011) jointly organized by World March of Women (WMW) Pakistan, Women in Struggle for Empowerment (WISE), Campaign for Abolition of Third World Debt (CADTM)-Pakistan and Peace & Human development Foundation (PHDF) in connection with Global Week of Action against Debt & IFIs. Several representatives of civil society organizations joined the demo. The participants were holding banners and placards inscribed with slogans against IFIs and their financial policies. They were chanting slogans in favour of their demands.

Speaking on the occasion, Focal person of CADTM-Pakistan, Syed Abdul Khaliq said most of the foreign loans were contracted by corrupt leadership of dictatorial regimes of Gen Ayub, Gen Yehya, Gen Zia and Gen Musharraf, who used those loans for projects which are of little benefit to ordinary people and which, in fact, served to increase corruption and improper patronage. As a result of its inability to repay the original debt, Pakistan was forced to obtain more loans and/or restructure its economy often at the expense of its own development. He demanded of the government to freeze debt servicing and divert the amount for the treatment of Dengue patients and restoration of flood affectees.

He said the country is paying $ 3 billion at average every year under debt servicing to foreign creditors. However, for FY-2010-11 the debt servicing target is much higher as of $ 5. 46 billion and ratio will further shoot up in 2014, when rescheduled loans will be back in action, amassing the external debt burden to $ 75 billion. On the other hand, the international credit ranking of Pakistan is also fast decreasing mainly because of multiple implications of the country’s involvement in US-led war on terrorism. A recent study by the IMF found that twenty-eight of the poorest nations are now at high risk of debt crisis. Pakistan is ranked on No. 5 in “cumulative probability of default” (CPD) report.”

He said, Pakistan’s external debt is estimated to be almost a third of its GDP. Although the country has low per capita income and is highly indebted, it is not eligible for the so-called Heavily Indebted Poor Country (HIPC) initiative because it is officially classified as middle income due to relatively high levels of exports and foreign investments. Pakistan debt management capacity is already weakened to large extent, crossing the limit of debt-to-GDP ratio; 60%, set under Fiscal Responsibility and Debt Limitation Act. Thus debt is becoming the sole reason of country’s economic stability.

Talking about different options, available to Pakistan, Bushra Khaliq, Execusitive Director Women in Struggle for Empowerment (WISE) said Post-Catastrophe Initiative recommends that the International Monetary Fund (IMF)-Pakistan’s largest creditor- considers debt cancellation for poor countries in which natural disaster has created substantial balance of payment needs and where the resources freed up by debt relief are critical for meeting these needs. The unprecedented floods of 2010 and recent floods in Sindh have affected over 28 million people altogether and are estimated to have a long-term cost of up to USD 40 billion on the Pakistani economy. This year (2011) Pakistan will pay Rs.908.8 billion to service both domestic and external loans which is 50% of targeted revenue collection and 32.6% of the total outlay for the year.

Sara Sohail, a leader of World March of Women (WMW) Pakistan said State of Necessity which is a principle enunciated by the International Human Rights Commission, suggests that indebted countries placed in a situation that makes it impossible for them to fulfil the very basic needs of their populations (health, education, food, water, housing, etc) have a right to repudiate debts and structural adjustment programmes. A similar position has also been taken by the UN Commission on International Law. Pakistan’s 2011 austerity budget combines drastic cuts to power and food subsidies with a massive increase in military spending and the so-called “reforms” demanded by the International Monetary Fund. The amount used to service foreign debt annually is estimated at three times the amount the government spends annually on healthcare. This in a country in which 38% of children under five are underweight, child mortality rates are among the highest in South Asia and only 54% of the population is literate.

CADTM-Pakistan member Rabbiya Bajwa said, Illegitimate Debts exist where loans have been granted to repressive regimes and/or where the money was used to fund projects which did nothing to benefit ordinary people but rather served to increase corruption and improper patronage. Debt relief has always focused on the borrower; the concept of ‘moral hazard’ is used to argue that non-payment of illegitimate debt is necessary to discipline lenders and prevent future lending to oppressive dictators.