THE PAKISTAN DEVELOPMENT REVIEW
The Debt of the Nation
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.