WB places Pakistan with Congo, Ethiopia
By Nadeem Malik
ISLAMABAD: The debt indicators for Pakistan have worsened and it has joined the severely indebted group of low-income countries, according to the Global Development Finance report of the World Bank.
The report has included 33 countries in the category of severely indebted low-income countries (SILICs), of which debt indicators only for Pakistan, Benin and Kyrgyz Republic have deteriorated further.
The report, officially released on Tuesday, shows that Pakistan's debt burden has increased from $30 billion in 1997 to $34.4 billion in 1999, but the gross national product (GNP) had declined from $63.5 billion in 1997 to $58.8 billion in 1999.
The Global Development Finance-2001 has used two indebtedness ratios in its analysis. The ratio of the present value of total debt service in 1999 to average GNP in 1997, 1998, and 1999; and the ratio of the present value of total debt service in 1999 to average exports (including workers' remittances) in 1997, 1998, and 1999.
If either ratio exceeds a critical value--80 per cent for debt service to GNP ratio and 220 per cent for the debt service to exports ratio--the country is classified as severely indebted. In case of Pakistan, external debt as a percentage of exports of goods and services (including workers' remittances) has increased from 265 per cent in 1997 to 344.5 per cent in 1999. External debt as a percentage of GNP has also jumped up from 47.4 per cent in 1997 to 58.5 per cent in 1999.
This debt to GNP ratio is the only indicator that makes Pakistan's economy better than Highly Indebted Poor Countries (HIPCs); all other ratios are even poorer. The SILICs group, as classified by the Bank, includes some extremely poor countries of the world, like Angola, Benin, Burundi, Congo, Ethiopia, Guinea, Indonesia, Nigeria, Rwanda, Somalia, Sudan and Uganda.
The statistical data of Pakistan shows that foreign direct investment (FDI) that peaked in 1996 to $922 million had declined to $370 million in 1999, and portfolio investment that touched the level of $1,335 million in 1994 (due to floatation of PTCL shares) had actually been shown as zero for 1998 and 1999, in the Bank report.
The fiscal situation in Pakistan and the other countries is similarly difficult. Moreover, public deficits have reached a point where interest payments on debt, around 33 per cent of current government expenditures, are impinging on the provision of needed public services and development expenditures.
The Bank states that the official foreign exchange reserves coverage for imports tended to decline across the South Asian region as merchandise import growth was high in 2000. This ratio fell precipitously low in Pakistan in September, to only one month of import coverage, and was also hovering around two months coverage in Bangladesh and Sri Lanka.
Inflation, as measured by the consumer price index, averaged 3.5 per cent for the region, with some upward pressure in Pakistan toward the end of the year, but a tailing-off of inflation in India.
The rise in oil prices in 2000 was counterbalanced by softer food prices and declining non-oil international commodity prices. Monetary policy was accommodating, as policy rates and inflation were largely unchanged, the report observed. The Bank reckons that the average growth for the South Asia region is expected to fall modestly in 2001, to 5.5 per cent, and to remain at this level in 2002, with a small up-tick in 2003.
External demand is expected to soften, but the region as a whole is not very dependent on external demand. In particular, the region's merchandise exports won't be directly affected by the sharp slow-down in global high-tech sales.
Fiscal deficits are expected to remain high, albeit a slowly declining trend, which will continue to limit growth below long-term potential. First, already high debt servicing prevents regional governments from expanding key public services and investment in infrastructure, both of which are direly needed to reduce poverty and clear economic bottlenecks. And second, the deficit tends to raise interest rates, thereby reducing private investment opportunities.
The governments in the region are committed to improving the tax base and limiting expenditures. They also need to reduce subsidies to agriculture and energy. Broadening of tax base has been difficult to achieve in the past. Limiting expenditures may similarly prove to be challenging as regional tensions add to pressure to increase military budgets, maintains the Bank.
The current account deficit is expected to remain above two per cent of GDP. Export growth is expected to decline and import growth will remain robust. Further moves to liberalise the import and foreign investment regimes are both likely to yield additional demand for imports, even if alternative trade barriers partially offset the impacts of liberalisation.
The price of oil is expected to decline, but only modestly in 2001, thus providing only little relief. On balance, the report says, growth over the near term is expected to be respectable, but the lack of more extensive and credible reforms, particularly fiscal and trade policies, and the public debt overhang, are limiting growth to below potential in the region.
http://www.jang.com.pk/thenews/apr20...main/main5.htm
By Nadeem Malik
ISLAMABAD: The debt indicators for Pakistan have worsened and it has joined the severely indebted group of low-income countries, according to the Global Development Finance report of the World Bank.
The report has included 33 countries in the category of severely indebted low-income countries (SILICs), of which debt indicators only for Pakistan, Benin and Kyrgyz Republic have deteriorated further.
The report, officially released on Tuesday, shows that Pakistan's debt burden has increased from $30 billion in 1997 to $34.4 billion in 1999, but the gross national product (GNP) had declined from $63.5 billion in 1997 to $58.8 billion in 1999.
The Global Development Finance-2001 has used two indebtedness ratios in its analysis. The ratio of the present value of total debt service in 1999 to average GNP in 1997, 1998, and 1999; and the ratio of the present value of total debt service in 1999 to average exports (including workers' remittances) in 1997, 1998, and 1999.
If either ratio exceeds a critical value--80 per cent for debt service to GNP ratio and 220 per cent for the debt service to exports ratio--the country is classified as severely indebted. In case of Pakistan, external debt as a percentage of exports of goods and services (including workers' remittances) has increased from 265 per cent in 1997 to 344.5 per cent in 1999. External debt as a percentage of GNP has also jumped up from 47.4 per cent in 1997 to 58.5 per cent in 1999.
This debt to GNP ratio is the only indicator that makes Pakistan's economy better than Highly Indebted Poor Countries (HIPCs); all other ratios are even poorer. The SILICs group, as classified by the Bank, includes some extremely poor countries of the world, like Angola, Benin, Burundi, Congo, Ethiopia, Guinea, Indonesia, Nigeria, Rwanda, Somalia, Sudan and Uganda.
The statistical data of Pakistan shows that foreign direct investment (FDI) that peaked in 1996 to $922 million had declined to $370 million in 1999, and portfolio investment that touched the level of $1,335 million in 1994 (due to floatation of PTCL shares) had actually been shown as zero for 1998 and 1999, in the Bank report.
The fiscal situation in Pakistan and the other countries is similarly difficult. Moreover, public deficits have reached a point where interest payments on debt, around 33 per cent of current government expenditures, are impinging on the provision of needed public services and development expenditures.
The Bank states that the official foreign exchange reserves coverage for imports tended to decline across the South Asian region as merchandise import growth was high in 2000. This ratio fell precipitously low in Pakistan in September, to only one month of import coverage, and was also hovering around two months coverage in Bangladesh and Sri Lanka.
Inflation, as measured by the consumer price index, averaged 3.5 per cent for the region, with some upward pressure in Pakistan toward the end of the year, but a tailing-off of inflation in India.
The rise in oil prices in 2000 was counterbalanced by softer food prices and declining non-oil international commodity prices. Monetary policy was accommodating, as policy rates and inflation were largely unchanged, the report observed. The Bank reckons that the average growth for the South Asia region is expected to fall modestly in 2001, to 5.5 per cent, and to remain at this level in 2002, with a small up-tick in 2003.
External demand is expected to soften, but the region as a whole is not very dependent on external demand. In particular, the region's merchandise exports won't be directly affected by the sharp slow-down in global high-tech sales.
Fiscal deficits are expected to remain high, albeit a slowly declining trend, which will continue to limit growth below long-term potential. First, already high debt servicing prevents regional governments from expanding key public services and investment in infrastructure, both of which are direly needed to reduce poverty and clear economic bottlenecks. And second, the deficit tends to raise interest rates, thereby reducing private investment opportunities.
The governments in the region are committed to improving the tax base and limiting expenditures. They also need to reduce subsidies to agriculture and energy. Broadening of tax base has been difficult to achieve in the past. Limiting expenditures may similarly prove to be challenging as regional tensions add to pressure to increase military budgets, maintains the Bank.
The current account deficit is expected to remain above two per cent of GDP. Export growth is expected to decline and import growth will remain robust. Further moves to liberalise the import and foreign investment regimes are both likely to yield additional demand for imports, even if alternative trade barriers partially offset the impacts of liberalisation.
The price of oil is expected to decline, but only modestly in 2001, thus providing only little relief. On balance, the report says, growth over the near term is expected to be respectable, but the lack of more extensive and credible reforms, particularly fiscal and trade policies, and the public debt overhang, are limiting growth to below potential in the region.
http://www.jang.com.pk/thenews/apr20...main/main5.htm
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