Time To Address Pakistan's Chronic Dependence On Foreign Aid

Time To Address Pakistan's Chronic Dependence On Foreign Aid
Pakistan is once again, going through a deep economic crisis. Like always, we have no other choice except to throw ourselves at the mercy of the IMF. Our perennial dependence on cheap and easy foreign money has finally come to haunt us.

Even a cursory review of the trend in the country’s rising imports over time is sufficient to highlight Pakistan’s muddled priorities and the underlying causes of our current crisis. Pakistan’s imports have increased from $0.5 billion in 1960 to ~$80 billion in 2022. Energy, food items, iron and steel constitute ~40% of the aggregate imports, which says it all. We claim to be an agricultural country; but, routinely import wheat, sugar, vegetables and edible oils etc. Similarly, we have miserably failed in effectively tapping indigenous source of energy. The Pakistan Steel Mills, commissioned in 1981, sits closed since 2015. Tuwairqi Steel, established through foreign direct investment of $330 million, has been shut over frivolous issues since 2013.

A tragic history

The 9/11 attacks on American soil ironically served as a windfall for us. The US needed us, and the dollars started flowing again. Thus, around $30 billon were provided during 2001-2010.

In the first four decades after Partition, we were able trundle on at the behest of the Cold War between the capitalist and the communist blocs. By 1990, the US had given to us something to the tune of $40 billion in aid alone. We even had the audacity to frequently throw tantrums, such as calling the $400 million offered as aid in 1980 peanuts, and demanding its revision. Since it suited the Americans’ interest till 1990, they kept on pumping the dollars into Pakistan. However, as soon as the Russians evacuated Afghanistan and the communist bloc started crumbling, they closed the dollar valve by invoking the Pressler Amendment, which had actually been in place since 1985. Consequently, American aid to Pakistan from 1990 till 2000 was a paltry $0.6 billion. However, instead of attempting to develop some semblance of self-sufficiency, we anxiously started looking for new sponsors and found them in the form of the Gulf States. 50,000 barrels per day of free oil for two years when we tested the nuclear bomb in 1998 was an exhibit of the same. The dependence has only grown with time, and taken on new dimensions.

In that set of circumstances, the 9/11 attacks on American soil ironically served as a windfall for us. The US needed us, and the dollars started flowing again. Thus, around $30 billon were provided during 2001-2010. However, the relationship again took a bad turn in 2011 over the killing of Osama Bin Laden in Abbottabad by the Americans in a night raid. The incident was followed in November the same year by a NATO forces mistaken identity attack on a Pakistani border checkpost at Salala, which resulted in 24 Pakistani soldiers losing their lives. Pakistan retaliated by closing the borders for NATO supplies for an extended period. The drone bombings which started in 2004 peaked in 2010; which further affected the relationship. Against this backdrop, the Americans again closed the dollar valve.

But, when the aid stopped, having learnt absolutely nothing, we went on a borrowing spree. Therefore, while our public debt till 1990 stood at 711 billion PKR, it had increased by 5.1 times to 3,684 billion PKR by 2001. However, post 9/11, due to the resumption of US aid, the rate of increment remained considerably low till 2010, i.e. 2.4 times by rising to 9,006 billion PKR only. In the next 10 years, with the US being unhappy again, it rose to 36,399 billion PKR - by 4 times. It currently stands at 62.46 trillion PKR including liabilities; a substantial increase from 50.496 trillion PKR in September 2021 and a reflection of the acceleration in the meltdown which started more than a decade ago.

Our creditors and donors have so far mostly subsidized the rot and the incompetence of the country’s ruling elites.

Another critical benchmark cannot be ignored in this discussion, which is that while the external debt in 1990 stood at 330 billion PKR and domestic at 381 billion PKR; they had correspondingly increased to 13,601 billion PKR and 23,283 by 2020. This is owed to the fact that when the Americans dumped us, other possible donors and creditors also closed their coffers. Being habitual borrowers, we frantically resorted to internal borrowing to fill up the associated fiscal void instead of controlling our expenses, trying to create wealth and spur economic growth. Nothing can better describe our chronic urge to be dependent upon others than the contemptuously uttered words of Trump during our PM’s visit to the White House in July 2019. The insults were to the effect that Pakistan was working against American interests till the US was giving it $1.3 billion in aid annually, and it started behaving since the US stopped that aid. Refusing to even register the insult, the visit was celebrated as a great success by us.

A "Friends of Democratic Pakistan" group was launched in September 2008. The initiative had the audacity to request for a "Marshall Plan" from the US, and over $30 billion in aid. As for the original Marshall Plan under which the total American aid dispensed was approximately $13.2 billion, it had proven sufficient to restore the economies of the 16 European countries, including West Germany, France and UK. Upon its expiry in 1952, economic growth in the said countries had surpassed pre-war levels. Other examples of judicious use of such aid are Taiwan and South Korea.

What is to be done?

Despite numerous IMF programs and a lavish supply of credit and aid, every socioeconomic parameter in Pakistan is running in the red. Simultaneously, any model or framework involving proactive participation, planning and execution on our part, such as CPEC, has so far failed. Thus, our creditors and donors have so far mostly subsidized the rot and the incompetence of the country’s ruling elites.

Therefore, creditors and donors should start linking up all of their programs for Pakistan with measurable targets for structural reforms. The country has more than 200 public sector enterprises. In order to generate immediate cash and equities in these firms, we should start with the energy sector and appoint new leadership.  Professional directors will prove to be a whiff of fresh air for these ailing public sector companies, currently gasping under their abject bureaucratic strangle and unprofessional boards. Also, this entire exercise needs to be managed by a dedicated team of world class professionals under the leadership of a professional. It would be doomed from day one if left to some Secretary Sahab. It is high time to implement complete separation of the bureaucracy from any institution involved in planning and execution.

60% of households in the rural areas of Pakistan are completely landless. Getting rid of feudalism, lock stock and barrel, and cooperative farming complemented by a massive dose of technology and research and development in agriculture are imperative.

As to the implementation of the above somewhat radical remedies; our ruling elites are, of course, provenly devoid of the required will and the capacity. However, the current angst among the masses, as a result of the given acute crisis, surely provides sufficient ground for a progressive national democratic vehicle to emerge and play that historic role.

The writer can be reached at shahbaz.khan_2006@yahoo.com