Ali Abbas’ exclusive post for PTH

If altruism is defined as selfless concern for the welfare of others, then foreign aid can never be altruistic. Aid always serves a purpose, may it be political, diplomatic or ideological. What of debt then? The same old original sin of modern man. The reason why we will never be pure again (unless, we can transform our current loans into Islamic loans of course!).

Theoretically, a country should take a loan when a simple Cost Benefit Analysis is satisfied. This CBA can be defined as follows: if a country can take a loan to generate a particular level of GDP, the loan is beneficial if the rate of increase in GDP is more than what is returned to the lender in the form of the interest plus the principle. In the real world, development banks or IFI’s such as the IMF, the World Bank and the ADB provide loans much with the same rationale that corporate banks provide loans: to earn an interest, finance their operational costs and make a profit. It is in the interest of these IFI’s to lend to developing countries.

However, developing countries don’t always borrow money on the basis of a rigorous Cost Benefit Analysis either. Instead, these loans more often than not provide political agents with bigger pies to slice rents off, and their cronies at the banks fatter pay-checks and better promotions for ‘achieving targets’ and lending more money to poor countries. Thus, the overall state of shock when Pakistan refused the US$ 2 billion loan that the ADB was willing to provide to Pakistan.

These unprofitable loans become a problem for poor nations (read: the nation minus the economic elite, which in Pakistan’s case turn out to be the industrialists and the large landowners) which are placed under the back-breaking burden of ‘debt-servicing’. As for bilateral loans, in a situation where the borrowing country suffers from pathetic utilization rates due to poor governance and economic structures, such lending more often than not allows the lender a say in the country’s affairs by establishing a state of dependency between the two.

Recent months have seen the burgeoning middle class, those educated and enlightened vanguards of our counter-reactionary movement take to the streets in Islamabad, demanding the government to take a stand in the international arena and demand a waiver of debts that Pakistan has accumulated up till now (more than US$ 52 billion). Commendable as this may be, it’s hard to believe that much will come out of it. The government has found it hard to explain why such loans have not been utilized profitably thus far, given its corrupt governance structures, leaking coffers and high military spending. The Social Action Plan of the 1990s did not produce tangible results. By end June 2001, Pakistan’s external public sector debt, at US$32.8 billion amounted to 55% of GDP, having grown at an average annual rate of 5.4 percent throughout the ‘90s. Musharraf – trumpeting his ‘enlightened moderation’ campaign – was able to bolster the economy by easing the flow of credit, however failing to substantially industrialize the country (a key condition for making such a form of growth sustainable).

Corruption has come up as a key word with reference to Pakistan. And this is something, which we can proudly say, hasn’t been achieved – at least primarily – through the nefarious designs of our hydra-headed invisible enemy. Tales about packed foreign accounts of our national leaders, stories of inhumane and corrupt acts during the floods where embankments were breached for personal gain, and conspicuously, the revelations of how deeply embedded spot-fixing has been in cricket, our beloved sport, with the trio of Aamir, Asif and Butt ringing a death knoll for all residual strands of our integrity, corruption appears to have seeped deep into our national identity and psyche.

On the debt issue, Pakistan cannot take a morally high ground. What it can do, is to invoke the state of necessity (which international donors have already suppressed to an extent) and beg the international community to waive off its loans. But this is no less than wishful thinking.

Let’s talk in numbers. As of March 2010, loans from the Paris Club amounted to US$ 14 billion, other bilateral lenders US$ 1.8 billion and multilateral financial agencies such as the IMF, WB, ADB, Islamic Development Bank US$ 32 billion. Debt relief could and is being sought from bilateral partners, and this could also be done under the IMF and WB’s Indebted Poor Countries (HIPC) Debt Initiative and Multilateral Debt Relief Initiative (MDRI). Rehman Malik’s recent statement on our ambitions of seeking debt relief at the Pakistan Development Forum have been rebuffed by Federal Minister for Finance Dr. Hafeez Sheikh. According to him, Pakistan cannot risk turning into a pariah state by demolishing its credit ratings and its potential in global capital markets by seeking debt relief. Responsible, economically adroit states don’t take loans and beg for their waiving off.

As for bilateral loans and multilateral loans (from organizations which the US has direct influence in through core funding mechanisms), the Obama administration – especially after the midterm elections would find it hard to provide a hostile Congress with a coherent rationale for being overly generous to Pakistan. Pakistan may be a frontline state in the War on Terror, but it is not so much of a favour that the country is doing for the rest of the world, as it is an existential battle which it has to fight either way, thanks to our ultra-religious, ultra-nationalist state policies and the socio-economic marginalization of vast swathes of Pakistan during the 80s and the 90s. The Americans know that if Pakistan falls, the world will not be ‘a better place to live in’. However, they also know (from historical precedence) that the world’s seventh largest army will not let the country fall so easily. It would rather prefer a military coup and attempt to increase revenues instead of demanding a decrease in costs in the form of debt servicing. The IFI’s will not ‘altruistically’ waive the loans, as they don’t stand to gain anything by doing so. They could always point to the staggeringly low social indicators that Pakistanis should be so ashamed of, and ask the government to do its job before presenting its begging bowl to the mother hen, puppy-faced for a golden egg.

As stated, the efforts of the youth of our country, the ‘middle class’ (which is less of such a monolith, but which is considered so for practical purposes) and the educated are commendable. The walks around Islamabad and the pressure exerted by this segment of our population gives us reason to be optimistic. However, even if these loans are waived off, with the current structures in place, it won’t be long before Pakistan is once again burdened by debt. What needs to end and end fast is the obsession with contemporary, capital politics. Requiring urgent attention is not only what is politically chic but also what has been sidelined precisely to avoid the clamoring crowd.

Cuts in military spending, political dialogue and engagement with the marginalized, focused programmes for development in undeveloped, vulnerable areas with tight oversight guidelines and regulations, and most importantly, an increase in the qualitative and quantitative share of education in the budget is the need of the moment. Public expenditure on education stands at approximately 2% of GDP compared to 13.5% for defence. In this world of endogenous models where human capital and technological change provide impetus for development, the fact that almost 40% of our youth today (masking regional variations) are uneducated beyond 5th grade must precipitate as a cause for concern. Unless advocacy is not undertaken to question our structural constraints which also include a stagnant industrialization campaign, un-innovative trade and commercial planning and amnesia with regards to the concept of comparative advantage, the debt issue will linger on in the foreseeable future. The politically active, urban class of educated elites would do well to give equal weightage, if not more, to these issues as well.



Filed under Pakistan


  1. MilesToGo

    Great Article!! USA doesn’t care about the Karachi bombings or 26/11, all it cares about is 9/11 and prevention of future 9/11s.

    The money will flow as long there is something Pakistan can do help prevent 9/11. Once everything that can be done has been done. The money will stop.

    Pakistan might stell get some money on a regular basis to keep check on the groups that want to target USA but I doubt it will help support Pakistan’s economy/budget.

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  3. MilesToGo

    Is it true that Hajj Pilgrims chant “Death to America”?

  4. kmToGo


    Hajj pilgrims not only chant “Death to America”, but the burning of American flags is now a mandatory ritual – no Hajj is considered acceptable without it.

    And to this they have added chants to the tune of “Down with India”. But it’s compulsory to do this in a specific sitting position – can’t just say it any old way. One must close ones eyes, sit cross legged (making sure that the right leg rests on top of the left), right hand on left ear, left hand flat on the top of the head. The posture is very rigidly defined – based on authentic sources.

    Apparently next year they are planning to change the dress as well. Details are sketchy, but apparently Israeli flags are involved.

    Let me know if you have any other questions.


  5. Of course, the world (esp. the North) will not waive the loans.

    Why should they? Since we fell on our National face in Dacca in 1971 – – over $200 Billions have been illicitly successfully siphoned off from Pakistan (Nawaz wipe-cleansed over $5 Billion; Zardari Fringe about $2 Billion+). All that money, being Unjust Enrichment/Black Money should be fully restored to the National Treasury (See Attorney General of HK v. Reid, [1997] 1 All ER 1; it was also reported in the PLD, but momentarily I cannot recall the exact citation off hand.

    Brazil, fifteen years ago was functionally bankrupt, but phoenixlike it has emerged triumphantly out of that disaster.

    Our Numbero Uno problem (and himalayan-level Tragedy) is rapid, rabid, worsening “rulers” (a bunch of hypocriotes and sedition-seekers) that cannot be rehabbed, it must be seminally replaced.

    Our Holy Prophet (peace be upon him) warned that “Do the Right thing and forbid all wrong … if you fail; to do so, you will be (as penalty) inflicted with corrupt and shameproof rulers … and good, Godfearing denizens will pray and such prayers will not be answered”. Let us heed that!! Mend our Double Standards and straighen-out our wicked wicked ways.

    Winning commercial cases, or making fancy speeches is easy (especially in Pakistan); we must act and outreach to resolve issues that our greedy top-class LLB (Liars and Lawyers Both) are not (understandably!) interested in.

    The handwriting is on the wall, if we read inbetween the lines. Our honest-to-goodness intelligentsia should now realiZe that no one will descend from the heavens nor drop from skies to bell the bad fat cats and restore our out of bounds (and parasitical) bureaucRATS.

    In Pakistan, justice just has melted into just ice. In the post New National Judicial Policy context this must change to Justice with love, as mandated by Articles 194 and 178 of the Constitution. No matter how many Pandora Boxes need to be broken-into or opened-up, Justice must be restored holistically and for every one: otherwise there is no hope …

    Our National memories are just too short : would someone kindly recall that when Hajji Nawaz SharrrReef was in power (as Prime Minister) in 1999, the forex reserves of Pakistan were well below $500 Million. Now the situation is only numerically better; in fact, we obtain loans from overseas sources and smuggly count that as our forex reserves.

  6. Milestogo

    Here is thought – there are about 170 million pakistanis. Ask the richest 5 million families to shell out $5000 each and send it directly to the lenders be it world bank or IMF. That is about 25 billion dollars. Half the debt is gone.

  7. Shemrez Nauman Afzal

    The Jang Urdu newspaper for Nov. 16, 2010 carried a cartoon where Pakistan approached the International Financial Institutions for a waiver of all outstanding international debt. Couched in its comfy armchair, a figure symbolizing the IFI’s started sweating as the figure (or briefcase, rather) symbolizing Pakistan stood at the door with a placard. The IFI’s butler said, “Sir, yeh loug uss mulk se aaey hain… jahaan qarze maaf karwana puraani aadat hai”…

    Is Pakistan ready to be another one of those politicians who get massive loans from banks and then get them waived when they are in government? Do the people of Pakistan really want the country to be loved by the international community in the same way that debt-forgiven politicians are fantasized about in this great land of the pure?
    Most importantly, why are we so pessimistic about not being able to generate enough economic opportunities, enough employment, enough capital and enough valuable reserves so as to be able to pay back ALL loans taken in the name of this country? True, we have been robbed blind by our rulers (past, present, what you will) but does that really mean we take to the streets of Islamabad and rob ourselves of the responsibility to set this country straight IN THE RIGHT WAY, not set it straight by acting like crybabies and saying its not our fault that we were sleeping while massive international debt was being accumulated (to be corruptly siphoned off and/or wastefully spent) in our name?

  8. Kaalket

    Pakistan is a new Medina of islamic world . No one should be surprised if they succeed in updating Haj ritual with obligatory slogan of Death to India, America and Israel and other Infidels. It is entirely different issue if the ritual condemnation come with urgent request of aid, loan or loan write off .

  9. Ammar Rashid

    Ali, nice article. It’s a perfectly valid description of how things will likely work out in the contemporary paradigm of political economy, within the parameters of which the current debate on Pakistan’s debt is taking place.

    IFI’s and bilateral donors will likely not waive Pakistan’s debt, because they have no immediate incentive to do so. Agreed.

    On your claim that we do not have a higher moral ground on this issue, however, I’m not too keen. Not because I believe we do, but because I believe, and this is important, that the question of morality is irrelevant here. As Mushtaq Gaadi recently pointed out in a superb lecture in Islamabad, the notion of morality in governance and political economy was cleverly inserted into development discourse by the proponents of the Washington consensus (Read: IFIs) in the 80s, in order to provide them with legal and discursive cover to interfere in and shape the politics of the developing world. It is a terminology that we have internalized, much to our detriment (leading to the repeated dismissals of several democratic governments in the third world in the 90s for ‘bad governance’).

    Debt relief is not important because we possess the ‘moral high ground’ on the issue but because it is necessary to alleviate the suffering of this country’s despairing millions, who are shouldering the burden created by the actions of a handful of complicit individuals from this country and their accomplices in the donor community.

    Pakistan, like many other developing countries, has already paid more in debt repayments than it has taken loans, which can be corroborated through several authoritative sources, such as literature produced by the international Jubilee Debt Campaign. This year alone, Pakistan paid its creditors five times what it received in aid for the floods. That is a truly bizarre situation, especially when 20 million people in the country are displaced.

    So yes, while I agree with you that our loans will likely not be forgiven, I disagree with you that they shouldn’t.

    Ideally, Pakistan should default.

    Yes, I know, that opens up a Pandora’s Box of consequences, as the IMF and Hafeez Sheikh (is there much of a difference?) will only be too keen to remind us of. And I agree that on its own, and without accompanying systemic overhauls (some of the likes of which you mentioned) it won’t make a sustainable difference.

    But I think it stands to reason that a Pakistani government that has the political backbone to default on (at least some of) Pakistan’s debt will also necessarily have the political will to undertake those necessary structural reforms (by first taking on and reforming the Pakistani Deep State).

    Therefore, I think a sustained campaign to build popular support for this initiative (while highlighting the rest of Pakistan’s gaping structural problems) is absolutely necessary.


    Actually, in Pakistan 500000 families do not exist who can spare or afford payola of US$5000 each at a time while more than half of the national populace cannot afford two square meals a day. Why should they go bankrupt due to appease and assuage the evil practices of about 300-400 freak (filthy Rich!) families who has sodomized the credit and credibility of The Land of the Pure?

    I have this practically-feasible nouveau-idea (Eureka!) … the best thing would be for foreign governments to whom we owe billions (in return siphoned off by the likes of Nawaz SharrrrREEF and Zardari and Favoured Others) to confiscate the accounts (including benamees) of all Pakistanis; pay-off the loans made in the past to corrupt GOP including reasonable administrative charges. And what is left may be, ex gratia, remitted to Pakistan; or spent in the name of the People of Pakistan for quality charitable work in UK, USA, France, Scandanavia, Leichenstein, Switzerland, Spain, Italy, Germany where budmoeasch Pakistanis operate their forex Nest Eggs.

    PS: There is this remaining question : perhaps venerable Asma Jilani Jehangir (who accompanied him while emigrating to CANADA) could perhaps Suo Motu persuade Nasir Jehangir-Jee (I hope that is his name) to clarify, Sua Sponte, if he has repaid all the industrial loans he obtained from nadirized Paki banks before sailing overseas for sight-pseeing. I found a letter by Asma Jee (written by her circa 13 years ago to my senior (and unremunerated volunteer) colleague Janab Mohammed Iftikhar Hussein RAJPOOOT) graciously suggesting we should contact Nasir (or whatever) direct. We certainly did, but, alas, of no avail. I wonder if Jehangir received our humble epistolary SOS-requests confidentially addressed to him c/o Pakistan High Commission in Canada as well as Canadian High Commission in Islamabaad. We have no other address, neither do we hit below the belt.

    (Realization of Truth is Bitter, Better and no Butter).

    One of my ancestors, I am infinitely- honoured to quote, Caliph Hazrat Ali (KAW) wrote that if you are not encountering any hardships or difficulties whatsoever in attaining your Noble Aims (“Manzil”), then do kindly ascertain that you have not chosen the Wrong Path. Ali ES put it much-more eloquently.
    {But read my translation again, it will open some new windows. It’s very apropos today, being timelessly live}.

  11. Hayyer

    Ammar Rashid:

    Your post justified the time fans of PTH waste in search of intelligence. I may comment later, but for the present, congratulations.

  12. First, lets not be shortsighted here. Political ideas regarding a higher moral ground and acts ‘for the greater good’ have been around since more than a millennium and a half. The fact that it may have been used specifically by IFIs to bring about the dismissal of democratically elected governments is an apologetic oversimplification of internal weaknesses of governance and the dynamic between the international (donor) community and these democratically elected governments. Furthermore, it’s a deflection of valuable discourse on the structural impediments to service delivery, while we expectantly look at the nation to readjust itself while on autopilot.

    Two things about what has been stated above are important. First, what makes the situation where Pakistan has paid almost five times the amount that it received in aid and donations bizarre, is not the absolute size of its debt which is nonetheless burdensome, but the mammoth floods that hit the nation, displacing 20 million people and the fact that aid for this disaster was well below our expectations. Arguing for short-term relief in the form of drastic adjustments made to the debt-servicing arrangements also becomes a possibility, while we retrieve and and attempt to fine-tune all relevant sectors. Secondly, it would serve us well to launch an effective campaign on pressurizing the relevant stakeholders to do more on the prescriptions that have been made in the article, and various others that could lead to our internal economic stabilization. I would still believe that the campaign for debt relief was a breath of fresh air and good practice and exposure as well as experience for future consolidated campaigns of this nature, but not much else.

    ‘Ideally’ Ammar, the Pakistani state should be a true democracy, its people should have a definitive sense of identity (which has remained in shambles, with us finding it hard to agree on even the basic premise for QAD’s actions – numerous articles have been written on this in PTH). We should be a nation defined by ethnic and religious plurality and be socially egalitarian. Given our strategic location on the map, we should be able to benefit from being part of a key trade route, with a stable economy bolstered by our mineral riches. So IDEALLY, we shouldn’t even be in the state that we are. Once you’re NOT in an ideal state, then you have to take your situation for what it is and try to improve from thereon. In our current situation and given that we have finite social energy, a sustained campaign for an increase of the share of public expenditure on education would be more productive if we are to invest in the future. As I said, you clear your debts now, you get bigger pies for slicing rents off, if anything, until the debts start increasing again precisely due to ‘bad governance’.

  13. Are not we playing a wrong fiddle? Pakistan has never moved to declare herself pauper and requested for waiver of all loans, specially so when loaners are more than one and every loaner has their own entity and prerogation. In reality, those loaners are anxiously awaiting that Pakistan make such a request (those loaners have a common agenda). When loans are advanced it is in their confidential knowledge that the country would default, more so when they have interest in the region of loanee. Then is the time to pressurize the loan trodden country to play their game in the region. This dirty game is being played since long. And this is not my brain child, mind you, readers are requested to go through “Confessions of an economic hitman” by John Perkins. Perkins accounted his own experience and the dirty role he played during his responsible positions, he travelled third world country to country, submitted his confidential report, how the plan was set in the confidential rooms of World Bank, USAID, IMF and other loaning banks and loans were advanced knowingly well they would not be paid even in its scheduled instalments with interests and then the Western governments jumped in to pressurize the game they wanted to.

    That is why Pakistan has been advanced such hefty loans that accumulated from 2008 (35 billion) to 2010 (52 billion). Someone is greatly mistaken if they think that they have only one agenda in this region i.e. war against terrorism. This may be one, but there are other serious nefarious designs. I can not discuss all of them but Pakistan being a nuclear country, readers are requested to jump on the conclusion on their own, any corollary drawn would be alright.

    But, those scholars and academia people in here, are they only destined to expose the misery and sleep on a cozy bed? No sir, caution is not enough, we must have counter-measure. We must not do what they desire. Debts are not bad if they are utilized in the manner that loaned money starts beget money by broadening industrial and agricultural base, making the country energy surplus. I have a dream.