A meeting Chaired by the Foreign Minister Shah Mehmood Quershi at the Foreign Office and attended by Minister for Palanning Asad Umar and Advisor on Finance Dr.Abdul Hafeez Sheikh, decided to launch diplomatic initiative for rescheduling bilateral and multilateral loans to offset the negative impact of halted production activities and decline in exports due outbreak of coronavirus pandemic. Pakistan’s permanent representatives to the United Nations in New York and Geneva also joined the meeting through video link.
Leaders of the group of 20 major economies, in their extraordinary meeting on March 26 pledged to inject $ 5 trillion into the global economy to neutralize the impact of coronavirus spread and facilitate measures to overcome the pandemic.
Prime Minister Imran Khan has already urged the leadership of developed countries to favourable consider the request made the countries with low per capita income for writing off loans. Foreign debt liability of Pakistan surged to $95 billion because of loans acquired by previous governments for import of luxury items and of LNG at very high price under shady deal, including ‘ take clause or pay’ and fossil fuel import for thermal power plants. Debt servicing has now become the top item of public expenditure as 27 percent revenues from domestic sources and foreign loans are allocated for the payment of public debt. In the prevailing grim scenario seeking of debt relief is the only viable option to secure fiscal space for restoring the stalled economic activity and allocate more resources to combat the pandemic and stem its economic fallout. It is pertinent to mention that in one of the earlier weekly briefing, Foreign Office Spokesperson Aisha Farouqi told that Prime Minister’s call for debt rescheduling and more loans on concessional terms to developing countries was getting favourable response.
Prior to the G-20 meeting in an online media briefing, IMF Managing Director Kristilina Georgieva said that coronavirus pandemic driven downturn of the global economy has hit hard 80 countries, mostly low income. She disclosed that these countries have already requested emergency aid for which $2, billion will be required. The proposal of IMF chief builds a rational not only for debt rescheduling but also for later refinancing facility of rescheduled loans repayment.
Debt rescheduling will provide a fiscal space to Pakistan to provide incentives to manufacturing and agriculture sector for reviving and boosting productivity. But it will not help in addressing the macroeconomic imbalance of public debt as the liability will grow in future. That is why the Prime Minster had urged the leaders of developed countries to make up their mind and show generosity for debt waiver acquired by the developing countries as their economies may not able to grow at fast rate, generating financial resources for clearing the external liabilities as per the set schedule.
The economies of industrialised countries of Western Europe and South East Asia can absorb the shock of downward slide of global economy because of their vast technological base, gigantic industrial infrastructure, and highly skilled manpower. These economies are resilient enough and possess the productive capacities of fast recovery and attaining boom. On the contrary, like majority of developing countries, Pakistan’s economy is foreign debt ridden. It has narrow technological and industrial base in addition to lack of facilities of skill development.
It will be extremely difficult to break the long recessionary cycle in which it has already caught since 2008 and had to avail two IMF bailout packages, including the present one of $6 billion. The revival of Pakistan’s economy and putting it back on the recovery path would need the facility of waiving of greater component of foreign debt and rescheduling of the remaining one. The multilateral donor had given partial waiver of loans to Pakistan during 200-02, when the quantum of foreign debt was less than $35 billion. Let us hope, economic diplomacy will focus more on bulk of foreign debt waiver extended by multilateral donor agencies.