Pakistan’s struggle to cope with long term poverty and the recent floods has been hampered by its massive foreign debt. This debt should be considered illegitimate because it has benefited Western creditors whilst doing little for the Pakistani population
Pakistan needs debt cancellation
The devastating floods of August 2010 have had a dramatic effect on Pakistan, where 60% of the population were already living below the poverty line of $2 a day. Pakistan spends 10% of government revenue paying foreign debt. Much of Pakistan’s external debt originates from reckless Western lending to undemocratic regimes which are no longer in power. Today Pakistan is repaying debt at a rate of $3 billion annually and the recently announced assistance to Pakistan in the wake of the floods includes nearly $3bn of new loans from the World Bank and Asian Development Bank. Pakistan’s external debt to the rest of the World increased by $10 billion in the last three years following the global financial crisis and floods and now stands at over $60 billion. This has included $8 billion of new loans from the IMF, with an interest rate of 4 per cent.
Pakistan will need more than aid if it is to emerge from this crisis and fight the long-term poverty that has blighted the country for so long. Pakistan should not have to mortgage its future by being forced to borrow for relief. Western countries and institutions must take responsibility for their role in Pakistan's troubled history.
How did Pakistan get to this situation?
The Indian subcontinent gained independence from the Britain in 1947 after more than a century of colonial exploitation. It had been decided that a Muslim country, Pakistan would immediately separate from officially secular but predominately Hindu India. The two communities had been dispersed so that in each territory there were millions of people who had to leave their homes to move within the borders of their new states. The resulting turmoil led to clashes between the two groups in which hundreds of thousands died. This contributed to a series of wars between India and Pakistan and resulted in the Pakistani army gaining a powerful role in society often ousting elected leaders and taking power. The West helped keep these undemocratic regimes in power in exchange for their support in the Cold War and then ‘the War on Terror’. Large loans, which did little for ordinary people, were used to fight these wars and strengthen regimes characterized by corruption and inefficiency.
Pakistan has experienced decades of poor growth and high poverty levels. By the late 1990s, Pakistan was in a position of extreme vulnerability with high and unsustainable fiscal deficits. The debt burden is now so heavy that it is equal to $ 350 per person, in a country where GDP per person is just $ 1000. Debt has further squeezed public investment and social spending with the IMF now demanding spending cuts and increased VAT which hits the poorest hardest. Pakistan’s huge debt could soon push it into a financial crisis. Debt relief is urgently needed.
Pakistani campaigners are fighting for justice
The debt movement in Pakistan has long been campaigning for debt cancellation, claiming Pakistan’s debt burden is illegitimate as it is built on loans that did not benefit the population. In the wake of the flood disaster, Jubilee South and Asia Pacific Movement on Debt and Development among others, have called for peoples’ organisations, movements and citizens groups in the South and throughout the world to step up solidarity actions. In September, mass rallies were organized in Lahore, Karachi and Islamabad, to call for debt cancellation. You can support them by telling the British Government to face up to its responsibilities. Take Action >>
Not only in Pakistan but across the muslim world the West has used loans to prop up corrupt and repressive allies then raked in interest whilst the people of those countries who have not benefitted from this borrowing are left to pay the back the debt. Read More >>
Last updated: February 2011