The Debt of the Nation

Pervez Tahir


The debt of the nation comprises two parts, the external debt
and the internal debt. After rapidly accumulating arrears of external
debt in the post-sanctions period, Pakistan has had to seek
re-scheduling of her external debt as part of a financing and reform
package negotiated with the IMF. While re-scheduling has not been sought
for the first time, the rising burden of this debt has generated a
serious debate for the first time. In the heat of this debate, the
heavier burden of the costlier internal debt has been nearly ignored.
Although this paper takes account of the totality of the debt towards
the end, its main focus is on the problem of external debt for reasons
not only of its immediacy but the prospects of forced self-reliance
raised by the financial and economic fall-out of the nuclear explosions
of May 1998. Section II looks for the data sources and discovers that
there are as many sizes of the debt as there are sources. In its latest
report, the State Bank of Pakistan (SBP) characterises the economy as
“highly indebted” in terms of its external debt, while the latest
Economic Survey (ES) does not consider the external debt as large as it
appears. Section III analyses these claims in terms of the
internationally recognised debt burden indicators. In Section IV,
attention is devoted to debt sustainability criteria. Section V of the
paper examines the question as to how debt, which also shows access to
capital required for economic growth, was allowed to become a burden
over time. The last Section presents main conclusions and suggests an
agenda for action.

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