Elected representatives of the people govern the state and serve the people; and the armed forces serve the state and give it protection from external threat. Or so we are told.
In Pakistan, the social contract between the people and the state stands significantly altered. The elected representatives of the people have abandoned the burden of all obligations, and enjoy only privileges and rights, the chief among which is to plunder the state, and to do so with total impunity; the people have no rights but only duties, the primary one among which is to elect the leaders and then to stoically bear all manner of abuse that these very leaders heap on them, and then to pray for redemption to the Almighty, and to the Army Chief; and the position of the Army is ambivalent, depending upon who is the Army Chief.
In recent months the position of the Army has not been so ambivalent. It has consciously moved into the space vacated by the elected leaders. The definitive marker of this paradigm shift was the initiation of Zarb e Azab. The Army has had many tactical successes in this operation. As a result, its credibility has seen a manifold rise, and General Raheel’s popularity graph has soared beyond any Pakistani in recent memory. What also soared with this were the hopes of the people of Pakistan.
But sadly these hopes are now crashing, and there is growing speculation among all sections of the people, including the lower ranks of the Army, whether there is a covert understanding between Nawaz Sharif, and General Raheel. It is beyond the ken and wits of the people to reconcile the death being visited on their country by a few hundred people, and the attitude of the Army to this unending rape of their country, when the Army is the only institution which can bring a halt to national agony whenever it so desires. That such a desire is seen increasingly receding, while the outrages against the people and the state are continuously and most brazenly escalating, is what baffles all those who had placed all their hopes on the one institution which could redeem them.
The army operations ran into heavy weather in Karachi. The definitive marker that the army operation had been halted in its tracks was when the Army was not allowed by the political leadership to proceed against cases of economic terrorism uncovered during the operation of the Rangers in Karachi. And thus far the Army has shown neither the resolve nor the courage to take the operation against terrorists to its logical end.
Before launching Zarb e Azab and its second pincer in Karachi, did the Army not appreciate the fact that there HAS to be a nexus between terrorism and the economic terrorists; that their paths MUST intersect [because a campaign of terrorism needs funding] and sooner or later these intersections are bound to be uncovered, exposing a path leading straight to the political heavy weights? And indeed when these paths of criminal involvement with terrorists were uncovered, leading to politicians, the politicians joined hands in unison against the Army operation and brought it to a halt. And the plunder of the state started with renewed vigour. The resolve and the commitment of the Army broke on the shoals of unity in corruption.
It was clear very early on that the government was a hesitant partner in the war against terrorists. This could clearly be seen in their attitude to the National Action Plan. However, obstructing the operation in Karachi was a case of overt taking of sides with the enemy at a time of war. This was a case of treason. What stopped the Army from going to the Supreme Court and insisting for an in-camera hearing on this issue, no matter how extra-ordinary this demand may have appeared to be in its legal aspect? In times of war and national emergency, extraordinary situations are always created, and they are always dealt with by extraordinary measures. Indeed, during the Second World War, the U.S. put its entire population of Japanese extraction in concentration camps, so why should our Army be pussy-footing?
Unfortunately, from the start of Operation Zarb e Azab to now, Pakistan’s overall situation seems only to have deteriorated, as ever new dimensions of the commitment of our political class, to plunder, are uncovered, and the consequences of this come increasingly into focus. That theft of national assets was the first priority of those in government, was already widely known. The pact among thieves known as the “Charter of Democracy”, the mangling of the Constitution, the politicization of the police, bureaucracy, and judiciary, and the incorporation of the political opposition to make it “friendly”, were all steps taken to guarantee the inviolability of the criminal enterprise of loot, passing itself off as “democracy.”
But with the part-exposure by the Panama Leaks, of the sheer depth of corruption and how far this extends into every sinew of the national body politic, the incredible scale of corruption has been put in full view for all to see, so that much that was earlier considered to be debatable, no longer is so. It is now clear that plunder of national wealth by those elected to guard it, is not the first priority with them, but the ONLY priority, along with seeking ways to completely immunize themselves from the consequences of their crimes both against the state and its people.
But the problem with corruption is that it is not easily quantifiable, and thus often remains a matter of speculation and debate. But there is one area where the scale of corruption does get reflected, and that is the national debt, a proportion of which is definitely incurred to defray the costs of corruption. And national debt can be quantified. This quantification can and will tell you the point at which a nation will go into default and bankruptcy.
Beyond anything else, it is Pakistan’s national debt which threatens to undo the state. Contrary to the belief that states are brought to an end by war, internal or external, the most lethal weapon to be used against a state today is debt. It is this which undermines the sovereignty and independence of a state. The IMF has enslaved more states than has the U.S. Army. Figures show that in all probability, Pakistan will default on its debt by about 2019/2020.
It is this, more than anything else, that should cause loss of sleep to General Raheel, and his colleagues. National bankruptcy will destroy the state that they are sworn to defend. The only option for them therefore is to come to the defense of their state BEFORE it goes belly up. And this cannot be done without getting rid of, jailing, and getting a reimbursement of stolen assets from those who have brought the country to its present state of woes.
I do not believe that Pakistan has been brought to its knees merely because Zardari and Nawaz Sharif et al, were so committed to ministering to their remorseless greed. I am fully convinced that they were also following an agenda to bring the country down. Countries which are going down the economic tube do not float bonds in the international market at three times the international rate of interest; they do not buy natural gas from Qatar at highly inflated prices and do so through long-term contracts, when prices of oil and gas are falling; they do not allow open season on flight of capital from the country; and they do not buy expensive toys like metros and the orange train at twice their justified costs. The way these fellows are going about their business is as if they are in a hurry to make off with anything of value still left in Pakistan. And people who can rape their mothers [in this case their country] can, and should be expected to sell the interests of their country to the highest bidder. And that is so clearly what has happened and is happening. If you have read John Perkins, you will know that in the case of all the countries which the U.S. has subverted over the years, in each case it has first subverted the leadership of that country. Knowing this, do either Nawaz Sharif or Zardari appear to you as persons whose rectitude and patriotism would have been able to stand in the way of blandishments to their serene highnesses?
The first demand from a bankrupted Pakistan HAS to be that we hand over our nuclear arsenal to the big boys. If Iran has just managed to put the threat of war behind it, by accepting huge compromises on its sovereignty, when it was yet years away from having the bomb, if anyone thinks that Pakistan will get away with its nuclear arsenal, when it will not be in a position to withstand even three months of sanctions, such a person would have to be sick in the head. And with the bomb will also be shut down the Chinese Corridor. If the U.S has made the most important paradigmatic shift in its defence policy of seventy years, by its pivot to China, thus lowering its priority to defend Europe, in favour of containing China, can this very same U.S be expected to allow Pakistan to give a way out to the China it is so committed to containing?
And lastly, General Raheel and his generals should be cognizant of another thing. As Operation Zarb e Azab gets progressively discredited, as all stalled operations inevitably must, resentment in the lower ranks of the Army, among those who have really borne the brunt of this long drawn out and arduous operation is certain to grow. In socio-economic terms, our soldier belongs in the same class as those he is fighting and killing, and being killed by. While the generals who deploy this soldier into battle belong to the class of those who have rendered their country bankrupt by their merciless theft. Thus sooner or later this soldier and the young officer who commands him in the field–the ones whose life and limb are ever on the line–are bound to get a very discomfiting thought in their heads. “How come that while I am deployed to kill members of the same class which I belong to, while the biggest knaves of the land, whose rapacity has created the insurgency in the first place, are all allowed to roam free? Is it because these thieves belong in the same socio-economic “elite” class as do the generals? Is this a case of the “haves” destroying the incipient power of the “have-nots”?
If and when this question first raises its head in a whispering debate, that day the generals should say farewell to their army. For the rest of us, there appears to be a short wait to see what will go down first, the country, or its army..
Of course, there is also the possibility that both may survive. But that will only be possible if the generals decide to interrupt their sleep.
P.S. I am appending below a paper on our national debt and its ramifications, written by a group of economists. Those interested must read it. This is likely to bring much clarity about our future as a country.
PAKISTAN’S DEBT SITUATION
We asked our economic policy research team to seek answers to some questions
from our well-known economists and financial experts. The answers obtained are
listed below. In the end we have included some observations from papers written
on the subject of Pakistan’s debt crisis.
Q: What is the country’s loan situation, both internal and external?
ANS: March 2015: Total debt liability in Rupee terms stood at 19 trillion (foreign debt:
6.4 trillion and domestic debt a little over 12 trillion).
Debt to GDP ratio: 66.40%. We paid $6.80 billion in debt servicing in FY15 ($5.9
billion in principal and $915 million in interest payments). Meaning, 47% of
country’s revenues were consumed in debt servicing.
September 2015: External debt climbed to $66.50 billion or a little over 7 trillion
– a jump of nearly 10% in 6 months!
State Bank’s own report FY15: “* Public debt to GDP ratio: 64.80%. * Pakistan’s
indebtedness compares unfavourably with other emerging economies, namely,
Bangladesh, India (now at the same level as a % of GDP), emerging & developing
Asia’s average, and emerging and developing Europe’s average.
Q: Given present projections, when is the country expected to enter the danger zone as
far as loan repayment is concerned?
ANS: Should have entered the danger zone by the last quarter of 2016, but oil prices have
been the saving grace and barring any dramatic changes, we should be able to
muddle through 2017, even if we decide to take a break from the IMF program.
Meaning that we negotiate the next package after a gap of a year (not likely
though as the government is keen to extend the program after the current one
The danger zone starts in 2018.First, Paris debt relief comes to an end this year.
Second, balloon repayments of Euro/ Sukuk bonds start in 2018.
Third, the grace period of the current IMF loan of $6.6 billion comes to an end in
Fourth, repayment of CPEC commercial financing reaches a high level.
Q: Given present projections are there any realistic prospects that Pakistan will be
able to repay these loans?
ANS: No–simply because debt sustainability is questionable. We have failed to shore
up competitiveness, so exports are declining while imports in quantum terms are
increasing. Meaning, if oil, gas and commodity prices were to increase it could be
Further, most spending has been in a non-transparent way, poorly prioritized and
on projects that require subsidy rather than being self-sustainable.
The total external debt is expected to cross $100 billion by 2019-20. This includes
CPEC financing .The cost of financing the debt repayment and current account gap
is projected to increase from $6.6 billion in 2015-16 to $13 billion by 2019-20.
Unless exports increase by 60 % to $38 billion debt servicing will not be possible.
Q: What are the ramifications and consequences for the country, should Pakistan not
be able to repay these loans?
ANS: We saw what happened in Greece despite it being a Euro-Zone member. We have
no European Union or the European Central Bank to come to our rescue. A default
could be disastrous with the potential risk of a run on the banks and a free fall of
Pakistan will have to go back to the IMF in 2018 after the elections. Depending on the
stance of the USA the conditionalities could be very tough. We could be brought
Q: between now and the projected time when Pakistan enters the danger zone, what
needs to happen to push back the boundaries of this approaching catastrophe?
ANS: Stop imprudent spending on fancy and unsustainable projects.
Shore up competitiveness to revive exports.
Resurrect PSE (Private Sector Enterprises) to cut down recurring losses.
Cut back on luxury and non-essential imports.
Optimize on the low oil price opportunity the way India and Bangladesh are doing,
i.e.do not significantly lower prices to consumers to avoid stoking demand and
instead, use the savings to lower industrial tariffs in order to boost manufacturing,
exports and employment generation.
Focus on increasing exports through exchange rate adjustment and proper pricing
Stop seeking high-cost external debt. Negotiate favourable terms for commercial loans.
Q: Are there any other special remarks you would like to include in your response?
The real concern which is surfacing gradually is of ‘hidden debt’. The more one
probes, the more it becomes evident that both recent political governments
(especially this one) are not accounting for sovereign undertakings, sovereign
guarantees (federal and provincial) and debt instruments other than direct loans
(bonds, saving schemes, long-term agreements with accompanying liabilities,
potential penalties, etc) in their debt fact sheet. This is not only dangerous but also
presents an inaccurate picture on the risk of debt facing the country!
There is a danger that the Government will go for pump-priming the economy from
the next budget onwards by increased domestic and external borrowing.
Some observations from papers written on the debt situation:
—–Pakistan’s debt profile is likely to worsen in the next five years. Highly
conservative estimates suggest that Pakistan’s external debt and liabilities is
expected to reach $105 billion or 387 per cent of export earnings by 2019-20 from
$65.2 billion or 271 per cent of export earnings in 2014-15. The present regime has
contracted over $30 billion loan in just two and a half years as against almost $25
billion loan contracted by the previous regime in five years. Thus the two regimes
have contracted over $55 billion loans since 2008-09 which will continue to be
disbursed over the years.—
—- External debt repayments are going to rise because of the maturing
Eurobonds/Sukuk, the start of the repayment of Paris Club debt and the repayment of
the current IMF loan. If the maturing bonds of 2006 and 2007 as stated by the SBP
are going to create repayment risks from 2016 onward, then what will happen to
the bonds amounting to $3.5 billion issued since 2014? As far as Paris Club debt
amounting $12.5 billion is concerned, it has been accumulated since the inception
of this country and more so during the decade of the 1990s. It was the then
government (2002) which succeeded in re-profiling the entire stock of the Paris
Club debt which benefited the country for 15 years.
—The debate on the definition and size of the public debt and its sustainability
continues to be controversial owing to the manipulation of data and lack of
transparency in the contracting and reporting of debt-related numbers. For example
whereas the government reports a lower public debt-to-GDP ratio than the SBP
(which states that it is 64.4%) the inclusion of contingent liabilities on account of
guarantees, the debt of Public sector enterprises, the circular debt and the
outstanding tax refunds the ratio touches 75%, making the debt-to-revenue ratio
close to 525%. Estimates suggest that if the tax-to-GDP ratio had remained at the
2003 level of 12% (now barely 10%) the level of total debt would have been
——Presently, interest payments (including those pertaining to domestic debt) are
now consuming 36% of total revenues and in excess of 46% of tax revenues, the
equivalent of 5% of GDP, with 70% of debt being of the domestic variety. The
increase in overall debt, and particularly of domestic debt, has not only been to
fund capital/development expenditures but also to finance recurring expenditures.
The latter owing to a) a continuing large sized Federal Government even after the
18th Amendment; b) poor prioritization of expenditures; c) expanded development
programs beyond the capacity of the government’s resource stream to fund them
adequately to prevent huge time and cost overruns; d) poor quality of project
designs; e) weak implementation, f) a poor debt management strategy-particularly
that of the domestic variety- in terms of its maturity profile and the rate at which
—-Although the ensuing inflation would be painful, domestic debt can
theoretically be paid off by printing money to pay off the holders of debt.
However, such an option is not available in the case of external debt, whose
servicing is a more daunting challenge. Our external account has historically been
our Achilles heel. We have been heavily dependent upon the generosity of the
international community and repeated IMF rescue programs (we have had to seek
19 IMF bailouts since 1958), for the following reasons:
a ) The imperatives of a security state which has resulted in the diversion of a large
share of resources away from critical expenditures on social services (i.e.
education, health and skill formation to upgrade the quality of human capital),
greater centralization of administrative and financial powers and the distribution of
resources and continuing conflict with the federating units;
b) An economic structure that has patronized rent-seeking, is inward looking
and has been reluctant to create a more equitable society. This elite structure has
been unwilling to contribute, on the basis of capacity, the resources required for
instituting a more just society. This arrangement also actively promoted the
creation of an industrial structure that discouraged the development of competitive
markets through entry barriers and has been unable to compete in global markets
without continuing state support and protection or produced low value-added
c) The low levels of investment and domestic savings; the latter resulting in
heavy reliance on external assistance and borrowings for financing investments (;
d) A low level of commitment to institutional strengthening that has affected
the quality of governance. Weak governance and lack of institutional capacity to
prioritize, plan and design development strategies resulted in the poor selection of
economic and social projects/ programs, and leakages on account of corruption.
The issues concerned with the poor formulation of projects have been compounded
by ineffective implementation and deficient oversight and evaluation;
e) The relatively low rates of domestic public and private savings and an overly
protected industrial structure has contributed to persistent fiscal and external
deficits that has raised debt levels and the debt servicing requirements; and
f) Fortuitous events internationally at critical moments of the country’s history
that led to large inflows of capital on concessional terms, facilitating fiscal
indiscipline and the frequent postponement of fundamental reforms—-.
—–Our external debt has ballooned by US$ 25 billion in the last 8 years. The
primary causes for such an outcome have been the continuously large current
account deficit-owing largely to a poor showing of our exports sector (for a variety
of reasons including policy weaknesses), requirements to finance interest and debt
repayments, a sharp slowing down of non-debt inflows in the form of FDI and
grants and heavy borrowing to build up foreign exchange reserves—-.
—-As a result of this relative acceleration in debt accumulation and the uninspiring
performance of our exports the servicing of external debt is now absorbing
approximately 27% of export earnings, rising from US$3.2 billion to in excess of
US$ 7 billion in 2014-15—-.
—-This relatively expensive commercial debt has been acquired although much
cheaper and longer maturity debt is available from the World Bank and ADB for
undertaking much-needed structural reforms. Historically, we have not had a
serious external debt issue because it has been predominantly longer tenure in
nature and borrowed at less than 2%, despite the fears of a currency mismatch due
to our meager export earnings—-.
—The government claims that it has ventured into international financial markets
to raise money through Euro and Sukuk bonds so as to enable benchmark-setting
(the ‘price discovery’) for the country to borrow in the future. This argument is
misplaced. Our credit ratings are monitored and revised continuously, being
dependent upon the government’s management of the economy. The rates at which
we can borrow can be different every time we enter the market will depend upon
the market’s perception of the economy’s performance. Hence, despite the
‘supposed’ improvements highlighted above, we still ended up, one and half year
later, paying the same rate as for the last bond issue—-.
—–The need for liquidity or for settling immediate obligations should not be
driving decisions to raise more external debt. Presently, the country has adequate
foreign exchange reserves (albeit built entirely on borrowed money), the bulk of
them in the form of a non-interest-bearing asset, cash. With the government and
SBP struggling to productively employ these reserves to earn higher returns on the
investments of the moneys so mobilized one is at a loss to understand what the
the government wants to, or can, do with this additional US$ 500 million on which,
going by present evidence, it would earn an extremely modest return from
investing in income earning projects or instruments. The overall result of such a
transaction would be a large net capital outflow, the servicing cost of the bond
being much higher than the income from investments of bond sales proceeds—-.
Note: This paper has made a point of emphasizing the fall in oil prices and its prime effect on Pakistan i.e. that had it not been for this fall in the price of oil, Pakistan may well have been teetering on the edge of bankruptcy.
But it has failed to make note of another consequence of the fall in these prices, namely that with the budget crunch in Saudi Arabia, one of the first to be hit will be its infrastructure projects. This will mean the return of Pakistani labour, and thus a shrinkage in foreign remittances–our biggest earner of foreign exchange, thus reducing our capacity still further to repay our loans. This may become the proverbial straw to break the camel’s back.