A matter of life and debt

FINANCE Minister Muhammad Aurungzeb acknowledged last week that Pakistan was seeking debt relief from China and other bilateral lenders to plug a financing gap in order to seal a loan deal with the IMF. In a press conference he said Pakistan was engaged with China, Saudi Arabia and the UAE for debt rescheduling of around $12 billion. Longer repayment periods are being sought for loans of $4bn from China, $5bn from Saudi Arabia and $3bn from the UAE, which the country had secured for a year and now wants to delay repaying.
Having returned after talks in China, the finance minister did not say if Beijing had agreed and responded to questions on this by asserting that discussions were “very constructive”. The board meeting of the Fund on the bailout package is likely later this month. The minister made it clear that “between now and the IMF board meeting we have to ensure confirmation of external financing from friendly bilateral partners”. Subsequently in remarks released to the media, Prime MinisterShehbaz Sharif told the cabinet he had written a letter to the Chinese government requesting ‘debt reprofiling’ for Pakistan.
Although external support is essential in view of heavily indebted Pakistan’s urgent financing needs, the government should have gone about it more thoughtfully. This is so for several reasons. The most significant is that when such debt relief is sought from, say, China, a creditor of many countries in the Global South, it is best to do it discreetly and away from the glare of publicity. This is important so as not to place a friendly bilateral lender in an awkward position, not least because this has implications for its loans to other countries. Although the finance minister apparently made these comments in response to questions, it would have been prudent to have refrained from public comment when talks are in progress. The time to do that is when talks produce an outcome.
In any case seeking external support is necessary but not sufficient to fix the economy. It is a fire-fighting response that should be accompanied by and be part of the country’s own longer-term economic plan that involves resolving well-known, long-standing structural problems. But a visionless government has yet to frame or produce such a plan. Its economic strategy rests on little more than meeting the IMF’s conditionalities and securing debt rescheduling from bilateral donors. That is not an economic plan. This despite the government’s claims it is evolving a home-grown one — that too under the stewardship of some British economist. This reflects the prime minister’s fetish for foreign advisers and consultants, and his lack of confidence in the country’s vast pool of distinguished economists.
A credible plan should address the country’s weak macroeconomic fundamentals, which persist and make any recovery fragile and unsustainable. Unless structural issues are addressed, the country will not escape from the vicious circle of anaemic growth, high deficits, heavy borrowing, growing indebtedness and soaring inflation. Failure to tackle them will make another crisis inevitable, need another bailout (the country is already in its 24th Fund programme) and yet more financial support from friendly countries, fatigued by Pakistan’s repeated requests. IMF programmes aim to stabilise the economy and create the conditions for economic recovery. But policies to grow the economy, promote investment and build business confidence are for the country to evolve, own and implement through a process of wide-ranging structural reforms.
Indeed, if the country is seen to be undertaking major reforms it would make it easier to achieve the short-term goal of securing external support to tide over immediate financing difficulties. When other countries see Pakistan is doing what it can to help itself, they will be all the more willing to accede to its financing requests. Absent serious efforts at self-help bilateral lenders, however friendly, will think twice especially as the ‘beggar bowl’ approach will be perceived to have become an unshakeable habit. In his previous tenure, Prime Minister Shehbaz Sharif publicly acknowledged that even friendly countries look at Pakistan as a country always ‘begging for money’. More recently, he claimed during an overseas visit that he had broken the begging bowl and the era of asking others for money is over. But that assertion flies in the face of reality.
The main thrust of his government’s economic policy is still to mobilise external resources from either multilateral or bilateral lenders. This increasingly puts the finance ministry in the lead to deal with the country’s key foreign relationships. It also means that the main thrust — or core goal — of foreign policy today has become trying to secure funds from friendly countries. This ignores or eclipses the country’s other foreign policy goals and interests. In fact, the lack of attention given to foreign policy beyond asking ‘friends’ for money and clumsy, ad hoc responses to international developments has become a distinguishing trait of this government. This isn’t only because the country has a part-time foreign minister, uninterested in foreign policy. It is also because the government has failed to acknowledge that in a rapidly changing and intensely competitive world it needs to focus on how to more effectively pursue Pakistan’s foreign policy interests.
This required in the first instance a broad review of the country’s foreign policy given the changing international environment, shifts in global geopolitics and strategic realignments taking place in the Middle East and beyond. That would have helped adjust policy to changing dynamics and reshaped diplomatic strategy to more efficiently pursue national goals. Such a review could also have involved a frank conversation between civilian and military officials on critical areas of foreign policy being handled by Rawalpindi. This may have improved civil-military coordination in these areas and offered an opportunity to government leaders to persuade the military leadership to see the foreign ministry as the country’s first line of defence and competent to handle issues on which it has been excluded in recent years.
Of course, none of this has happened. With the country’s economic and foreign policy mainly focused on securing external financing and debt rollovers, Pakistan is at risk of being reduced to a supplicant in its principal bilateral relationships.
The writer is a former ambassador to the US, UK and UN.
Published in Dawn, August 5th, 2024