Pakistan
- Total external debt: $33.7 billion (World Bank 2005)
- Total external debt payments: $2.4 billion (World Bank 2005).
- Population: 155.8 million (World Bank, 2005)
- Percentage of adults who can read and write: 49.9% (HDR 2005)
- Average life expectancy: 64.6 years (HDR 2005)
- HIV prevalence: 0.1% (HDR 05)
- Total health spending: 0.4% of GDP (HDR 04)
- Total spending on debt service payments: 2.21% of GDP
- Annual GDP: $110.7 billion (HDR 2005)
DROP THE DEBT FAST
Pakistan is the focus of the Drop the Debt Fast on Thursday 8 May.
Modern political history
The modern state of Pakistan was born out of the partition of the Indian sub-continent in 1947. Originally in two wings, in 1971 the east wing broke away to form what is now Bangladesh. Violence has broken out with its neighbour India over the disputed territory of Kashmir several times over the years.
Pakistan has had alternating periods of civilian and military rule. Most recently, General Musharraf came to power in a coup in 1999. He has face economic challenges as well as increasing Islamist militancy which is in conflict with the secular wing of Pakistan.
The events of 11 September 2001 and subsequently, propelled Pakistan into the spotlight and it has become a key ally of Washington in the fight against terrorism.
Parliamentary elections were scheduled to take place on 8 January 2008, but were postponed until 18 February after the assassination of opposition leader Benazir Bhutto.
Where has the debt come from?
Pakistan has seen 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 and a heavy debt burden, which squeezed public investment and social spending.
In recent years economic growth has greatly improved and external debts have been somewhat reduced, with a slight increase in social expenditure. However, its debt level is still very high and it still faces huge challenges. Poverty levels are high, with a per capita income comes of just US$770 (World Bank, 2006), and poverty levels have actually increased since the late 1990s, while inequality has also risen. Gender inequality has not improved, in terms of girl schooling and female literacy rates, for example.
Pakistan has large debts to the World Bank, amounting to nearly $10 billion, as well as large bilateral debts and debts to other multilaterals including the IMF.
Norway’s debt-for-development swap
In November 2006, the Norwegian Government agreed to cancel $20 million of a total $46 million debt owed by Pakistan to Norway. In return, the Government of Pakistan has agreed to mobilise an equivalent amount for development and poverty reduction purposes by the end of 2008. The funds are channelled through the Pakistan Earthquake Fund (PEF), the purpose of which is to support rehabilitation and reconstruction after the devastating earthquake suffered by Pakistan in 2005.
Debt swaps are an innovative mechanism that can reduce a country's debt burden, whilst directing money to development projects. However, their overall impact on levels of debt can be tiny compared to the costs in terms of time and effort on the part of the debtor government, and they are certainly no panacea for debt cancellation.
Debt cancellation status
Pakistan is officially classed as a low-income country by the World Bank. It is considered to have a 'sustainable' debt: this is measured by the size of external debt in comparison to the value of exports, without taking into account domestic debt or what Pakistan needs to spend on tackling poverty. It is therefore not eligible for the Heavily Indebted Poor Countries initiative or the Multilateral Debt Relief Initiative. Nor is it eligible for additional debt relief from the UK or other bilateral donors.
Pakistan has had several Paris Club debt restructurings, which have increased the time over which it can repay. However, the New Economics Foundation calculates that Pakistan still requires 100% debt cancellation in order for the government to meet the basic needs of its citizens, such as health, education and infrastructure, without taxing those living below an ethical poverty line of $3 a day.
More information:
World Bank
Last updated: April 2008
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