How can Pakistan reduce foreign debt?

Suggest mechanism in Pakistan economy to handle external

persp
How can Pakistan reduce foreign debt? Suggest mechanism in Pakistan economy to handle external
perspective of Pakistan’s economy. 

“We must work our destiny in our own way and present to the world an economic system based on true Islamic
concept of equality of manhood and social justice.”

Introduction:
The economy of Pakistan is the 26th largest in the world in terms of purchasing power party (PPP), and 44th
largest in terms of nominal Gross domestic Product (GDP) even though the country is sixth most populous in the
world. As Pakistan has a population of over 186 million (the worlds 6th largest), thus GDP per capita is $3,149
ranking 140th in the world. Pakistan is a developing country and is one of the next eleven countries that along with
the BRIC’s have a potential to become one of the worlds large economies in the 21st century. However, after
decades of war and social instability, as of 2013, serious deficiencies in basic services such as railway
transportation and electric power generation had developed. The economy is semi-industrialized, with centres of
growth along the Indus River. Primary export commodities include textiles, leather goods, sports goods, chemicals
etc. 

Pakistan is currently going through process of Economic liberalization which includes privatization of all government
corporations, aimed to attract foreign investment and decrease budget deficit. In 2014, foreign currency reserves
crossed $15 billion which has led to stable outlook on the long-term rating. However, the economy of Pakistan is in
a strangling state due to many reasons and the issue of foreign debts is core. 

Foreign Debts:
An outstanding loan that one country owes to another country or institutions within that country. Foreign debts
also include due payments to international organizations such as the international monetary fund (IMF). The debt
may be comprised of fees or goods and services or outstanding credit due to a negative balance of trade. Total
foreign debt can be a combination of short-term and long-term liabilities. 

One relative measurement of foreign debt safety is that foreign exchange reserves should not be less than
outstanding short-term foreign debts. Governments can lower their foreign debts by rescheduling their obligations
or simply by paying them off. Foreign countries typically hold US debt in the form of short and long term
government issued bonds. 

Pakistan’s Foreign debt:

External debt in Pakistan remained unchanged at 64338 USD million in the fourth quarter of 2014. External debt in
Pakistan averaged 49246.37 million USD from 2002 until 2014, reaching an all time high of 66490 million USD in
the third quarter of 2011 and a record low of 33172 million USD in the third quarter of 2004. External debt in
Pakistan is recorded / reported by the State Bank of Pakistan. 

Reducing foreign debt:

To reduce the foreign debt, Pakistan needs the structural changes in its economy. The reliance on external
financing has rusted away the countries economic potential. To minimize the dependence on the external hand, it
needs to set its economy on the stable basis for growth, getting off the roller coaster, reducing the imports and
balance of payments and diversifying resources for the export promotion. Hence, the structural changes in
economy will make it stable and reduce the possibility of foreign debt. 

Mechanism to reduce foreign debt/perspective

1) Reducing Govt. expenditure:

The biggest expense of a country is the one that the government spends at its functioning. This in turn reduces the
GDP of the country. Hence, government expenditure needs to be reduced following the footsteps of Quaid-e-Azam
Muhammad Ali Jinnah who received only one rupee as his salary being the first governor general of Pakistan. 

2) Stable basis for growth:

The growth of a country’s economy is highly dependent on it’s social and political stability for various reasons like
investor protection. Pakistan has been a victim of political stability in terms of military inventions and even
unstable democratic regimes. Socially, Pakistan has be subject to severe extremism and terrorism. Hence, a stable
Pakistan is a pre-requisite for economic growth. 

3) Getting of the roller coaster economy:

Pakistan has been going through ups and downs in its economy. In periods it saw highs and lows in economic
growth depicted by various methods like the stock exchange. Therefore, it needs to get off the roller coaster and
take it’s route on a carpeted road. 
4) Reducing the balance of payment:
Balance of payment depends on the export and imports of country. Pakistan should try to increase its exports to
minimize it’s negative balance of payment, and by reducing imports. 

5) Proper collection and utilization of public finance:

Pakistan faces severe crisis in the collection mechanism and utilization of taxes. A vibrant and effective tax
collection mechanism should be developed and implemented to increase public revenue. Furthermore, strict check
and balance method should be developed to ensure that the revenue is being utilized in a productive manner. 

6) Access to foreign markets for Pakistani products:

Pakistani products, which are of international standards, needs to be given access to foreign markets where they
can compete with other countries products, which will increase exports, improving the balance of payment.
Pakistan getting the GSP plus status from the European union is a good step forward in this respect. 

7) Promotion of free trade with the neighbouring and friendly countries:

Barriers of borders and approvals for trade between neighbouring countries should be reduced or finished to
increase the area of economic activity. The more broad and widened economic activity will definitely improve the
economy. In this respect, granting India the MFN status, with it’s due pros and cons is under consideration. 

8) Encouraging foreign direct investment (FDI):

Foreign investors and companies should be motivated and attracted towards Pakistan’s large market. This can be
done by providing investor protection in legal and security terms. This requires social and political stability as well
as infrastructure as well as legal protection as in China. There are laws in China regulating FDI. 

9) Using the domestic natural resources to strengthen the economy:

Nature has provided the soil of Pakistan with many natural resources which are a backbone of an economy. From
the second largest salt mine (Khwera) to the gas fields in Balochistan and the recent discovery of copper and gold
from Rajoa-Chiniot, Pakistan has been bestowed with various gifts from Allah. These can be used in strengthening
the economy by reducing the dependence on other countries from whom the similar resources are being
purchased. 

10) Countering energy crisis analysis:

Economic integration leads to political integration. Political integration leads to peace, prosperity, stability and
democracy. Pakistan is very much capable in its capacity to ensure stable economic growth. It needs improvement
which is possible by stability of government and policies. With the smooth transition of democratic governments,
there is a ray of hope.