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Dysfunctions Last Updated: Jun 5, 2019 - 11:45:50 AM


Debt Trap: Taking More Debts to Pay Interests on Earlier Debts
By Dr. Nasrullah Khan, Comsats University, 1/6/19
Jun 3, 2019 - 2:44:21 PM

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Half of the World Faces Risk of Debt Trap Death Spiral

 

An epic dark side of capitalist democracy is to force representatives to take more debts to pay interest on older debts. Media pundits consider India, America and Pakistan in debt trap death spiral [Strategy 2019; Engdahl, 2019]. Humans owe to pay debts to banks and financial institutions everywhere. International financial institutions force political leaders to privatize health and education sectors. High health charges and pricy education lead to rampant rise in diseases and illiteracy rates. Democracy is good but debts, usuries and compound interests are perceived bad for developing countries. Debt-trap diplomacies are time bombs set to explode in coming decades.

Pakistan has $100 billion foreign and $250 billion local debts. If 50% of the national income goes in debt serving, 25-30% in defense and 30-35% in paying pensions and salaries then incumbents need to take more debts to operate their governance. Debts have reached to 91% of GDP which are likely to become 100% of GDP in next few decades. Inflation and unemployment increase street crimes. Foreign agencies use dissidents to destabilize Pakistan. The electricity bills in summer at 45-52C temperature are more than the salaries of 50% employees. There are 31million commercial electricity consumers out of which 90% pay no tax. Global financial institutions force incumbents to raise oil, gas and electricity prices to increase national income to pay taxes. Analysts claim we need Jamaica and Peru style economic strategies to get rid of debt trap death spiral [Syed 2019].

Pakistan is in top ten charity giving countries and bottom ten tax evading countries. Our 99% people pay no direct tax and rest 1% pay less tax. Out of 1% tax payers 5-6% are employees and 94-95% traders and business communities. According to Ali [Ali 2019], 38% of tax goes to government the rest 62% to oil the tax collection machinery. Landlords, industrialists and spiritual groups have legally exempted their income out of agriculture/shrines from taxes. More than 80% business is not documented so traders vote for the status quo supporting political parties. A few percent rulers burn money like waste papers and rest all burn their blood to make the both ends meet.

Federal Cabinet has announced amnesty scheme to document black economy. Private sector has been asked to whiten their black money by paying 4% tax on shifting dollars from overseas banks into local banks or by paying 6% tax if they want to keep it in foreign banks. They can whiten immobile assets in other countries by paying 1.5% tax on its value. However, civil servants, executives and politicians are not allowed to avail this scheme who really own these assets in foreign lands. End of this amnesty scheme seems to be same as earlier amnesty schemes.

Adviser to Prime Minister, Hafiz Sheikh, said IMF has agreed to give $6 billion loan to Pakistan in 39 monthly installments. He claimed this loan will help us get more debts from other financial institutions. I am not an economist. However, I know when someone has more debts than his income, he is trapped in vicious debt cycle. Incumbents have to take more loans in successive years to pay rising interests on earlier debts. Inflation, unemployment, shortages, hoardings using black money, rise in taxes and fall in value of local currency are some of the grave consequences.  

Debt trap refers to a situation in which the debt is difficult to repay. High interest payments prevent repayment of the principal amount. Debt-trap diplomacy is based on debt carried out in the bilateral relations between countries. The creditor country intentionally extends excessive credit to another debtor country with the alleged intention of extracting economic or political concessions from the debtor country when it becomes unable to honor its debt obligations. The conditions of the loans are kept secret and the loaned money is used to pay companies from the creditor country, which had won without open bidding. The curse of compound interest is the country entombed in debt trap finds pitch dark back and a long murky road ahead with hope to see light at the end of tunnel.

Government debt (or public debt) contrasts to annual budget deficit that is difference between regime receipts and spending in one year and the debt includes accumulation of all prior deficits. Government debt consists of internal (local banks) and external (foreign institution) debts. Governments create debts by issuing bonds and bills. High worth countries issue bonds and bills in their own currencies and low worth countries in foreign currencies. American, Japanese and Chinese public debts are $17.60 trillion, $9.87 trillion and $3.89 trillion respectively, which are much higher than Indian ($99 billion), Egypt ($479 billion) and Pakistan ($283 billion). Every American and Pakistan citizen owes to pay debt of $53,822 and $1347. Each American has 40 times more debt than any Pakistani citizen, yet they do not worry due to their trust in their leaders, which Pakistanis lack due to their bitter experience.

Government implicit debts include election and genuine promises for social security, health, education and defense, which are paid on quid pro quo basis. When the expenditures of governments are more than their tax revenues for decades, the country enters into vicious debt cycle. A country in debt trap needs to take more debts to pay interests on earlier dents. When a state suffers debt trap the foes and friends start doing social engineering through electronic and print media. Foes work on currency devaluation and the friends start debt-trap diplomacy for their vested economic and political interests. Western World claims many SAARC, African and Central Asian countries are victims of Chinese Belt & Road Initiative based debt trap diplomacy. Let us try to explore how Pakistan went into debt trap in seven decades.

First Military Dictator in Pakistan increased foreign debts to $6 billion in 1960s and second doubled these debts to $12 billion in 1980s. One decade Civil Governments (PPP/PML) further increased foreign debts to $39 billion in 1990s, however, third Military Dictator reduced foreign debts from $39 billion to $34 billion in 2000s. PPP Government raised the foreign debts again from $34 billion to $60 billion from 2008 to 2013 and PML-N Government further raised the foreign debts from $60 to $98 billion from 2013 to 2018. PTI Government is expected to raise foreign debts from $98 billion to $120 billion in coming years. PPP, PML and PTI leaders claim to take debts to pay interests on earlier debts.

We hope the light at the end of the tunnel as devil’s despair is not any solution. There were no milk and honey canals flowing in past, however, life was never so difficult in earlier decades. Health and education business have locked down people. Media has shown the dark wells, dungeons and offshore companies where national resources have been going. Global economic system acts as a wormhole with black hole end here and white hole end in foreign offshore companies. Worm holes use their black holes to suck resources from one place to puke through white holes at another place.

Rupee has fallen down to 145 against the dollar in 2019 as it had fallen down to Rs150 in 2008. IMF demands to expand tax net for more debts and FBR asks for $400 million to implement it. FBR chose 14, 154 tax payers for audit and lacks capacity. Income tax department exerts more efforts on existing tax payers and lesser in expanding the tax net. According to Faraz Afzal we have 1.84 million tax payers out of which more than 1 million are employees and less than 0.84 million others [Web 2019]. Media claims 8 million people are taxable out which 4.2 million got tax numbers and 1.84 million pay taxes.

General sales tax (GST) is charged from both tax payers as well as non-tax payers. The tax payers are under pressure and non-tax payers have to pay alone GST on commodities. Tax payers are raided and audited and non-tax payers live in paradise. According to IMF outlook report 2019, our growth is 2.9% that will decrease to 2.8% next year. Inflation is 6.1% that will increase to 6.2% next year [IMF 2019]. Government claims the Hadibya Case is the role model of corruption in Pakistan.

Prime Minister, Imran Khan, citing French economist Frédéric Bastiat, said that the money launderers behaved with indignation when they were questioned. French Economist Frédéric Bastiat had said, “When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.” Offshore companies, the amnesty schemes and tax systems protect them legally [Staff 2019].

Earlier ministers, chief ministers, prime ministers and presidents opened fake accounts in the name of dead or poor people to transmit black money overseas. They accumulated black money in from 1988 to 1990, opened fake accounts to transfer it into their offshore accounts. They made laws in 1992 to whiten it legally by bring back into their own accounts in Pakistan. This standard model is used to whiten black money legally in Pakistan. Societies fail when leaders make plunder their way of life.

Inherited politicians buy votes to win elections and claim that public has given them mandate. They recruit police, judges and civil servants on the basis of their loyalty to them instead of merit. National accountability bureau (NAB) was used in past to penalize political opponents. PPP and PML had pledged to get alternately the federal and permanently provincial governments forever. PTI has broken their vicious cycle and gave free hand to NAB, FBR and Judiciary. NAB ask for money trail to which politicians call revenge and derailment of democracy.

Pakistan’s foreign debts were $6 billion in 1970s, $12 billion in 1980s, $39 billion in 1990s. Pervez Musharaff reduced foreign debts from $39 billion to $34 billion during 1999-2007. Asif Ali Zardari again increased foreign debts from $34 billion to $59 billion during 2008-2013. Sharif brothers further increased the foreign debts from $59 billion to $95 billion during 2014-2018. Asif Ali Zardari increased internal debts from Rs6000 billion to Rs12000 billion during 2008-2013 and Sharif Brothers further increased Rs19000 billion during 2014-2018 [Ali 2019].

Our local (Rs19000 billion) and foreign ($98 billion) are total Rs30, 000 billion debts today. Our annual income is Rs5000 billion out of which provinces take 2300 under 18th amendment, military spends Rs1700 billion and white elephants (PIA/Steel Mills/Railways/WAPDA) guzzle Rs300 billion. Circular dents have now been accumulated to Rs1450 billion. Federal government cannot function with Rs300 billion alone. Sharif brothers and Zardari family increased foreign debts from $12 billion to 39 billion out of which only $4 billion Motor Way is visible rest $25 billion gone in dark dungeons.

Our debts are 82.3% of economic volume and budget deficit is 260 billion. PTI Government has taken so far Rs3400 billion debts to pay interest on debts. PML(N) increased debts from Rs13,000 billion to Rs24,000 billion in five years and PTI increased it further to Rs27,400 billion in first year. If things continued like this then our debts may increase to Rs41, 000 billion by 2023 [Talat 2018]. Nation should support PTI if this party also fails then there will be pitch dark everywhere. PTI has the best team of economists who can be trusted to drive the nation through looming economic crisis.

Pakistan owes to pay $98 billion foreign and Rs19, 000 billion local debts, all together Rs30,000 [SBP 2019]. Economic experts say the economy was on ventilator in PPP Government, in ICU in PML (N) Government and in General Ward in PTI Government. PPP increased Rs7000 billion debts, PML (N) increased Rs11, 000 billion debts and PTI is forecast to increase Rs17, 000 billion in next five years. Our total debts and liabilities are 86.5% of national economy. Foreign debts are 35.8% of national GDP. Our real issue is 2.8% population growth that cranks up demand debts, shortages, poverty and pollution.

Pakistan’s trade deficit was $20 billion in 2014, $22.2 billion in 2015, $23.9 billion in 2016, $32.5 billion in 2017 and all times higher $37.6 billion in 2018 [Shahbaz 2018]. Friends of Pakistan advise to take aid and do trade too. From 1958 to 2018, we went to IMF 21 times and borrowed $27 billion. PPP and PML (N) governments borrowed $11.6 billion in last decade. Inflation skyrocketed to 11.8% and real GDP plummeted down to 1.7% in 1995. The inflation rate and real GDP were locked to 9.3% in 2005. Inflation rate again skyrocketed to 19.6% and GDP fell down to 0.5% in 2009. Current inflation rate is 9.5% and real GDP less than 4% today. However, rupee devaluation has gone too high up [IMF 2019].

If poverty is assumed to be access to one time food in 24 hours the 140 million people in Pakistan and 800 million in India live below the poverty line. India and Pakistan spend 60% to 70% of their budget on the military expenses instead of feeding the poor. Literacy rates are about 50% in both countries and extremist groups have visible presence. Courts are overloaded with cases and jails are packed with criminals. PhD and MBBS doctors as well as engineers are wandering unemployed on roads.  

President of Pakistan, Arif Alvi, advises universities to carry out applied research in light of market demand [Radio 2019], but 99% universities conduct theoretical simulation based research without designing any hardware that could be sold in market. Professors do simulation research and waste millions of dollars in publishing their results in Open Access journals. IT, AI, IoT and block chain technologies have huge potential to join the 5th industrial revolution [Arif 2019].

Strong economy, innovative technology and military superiority are three vortices of power triangle. Pak Army has shown its superiority on enemy by downing her two fighter aircrafts. We seriously lag in smart technologies which are base of economy. We have a huge swarm of computer, information and telecom experts. Government may force them to produce or perish [Yasir 2019].

World community recognizes Imran Khan, Prime Minister of Pakistan, a very honest and nationalist person. However, governance needs will and skill to lead the nation. Economy of a country is like a bird in air that can fly either upward, downward, forward, or backward. Upward flight is recognized as a fast progress and downward flight a deadly decay. Forward flight at slow upward trend is a steady progress and backward flight is journey to nowhere.

Public and private sectors are responsible for employment through their fiscal, monetary, trade and business policies. Skilled manpower is the ultimate growth engine of any country, which when becomes unemployed the country cannot maintain growth rate. Ishak Dar claims 7.5% reduction in economy due to stagflation. According to Karl Mark, “It is in the very nature of the capitalist mode of production to overwork some workers while keeping the rest as a reserve army of unemployed paupers.”

We have unfathomable ocean of unemployed graduate and post graduate scholars finding little job prospects since last ten years. Democratic countries should stop opposing Pakistan as young graduates are turning against capitalist democracy. Pakistan had less than Rs6000 billion debts in 2007. First democratic government of Zardari (PPP) increased debts from Rs6000 billion to Rs14000 billion and second democracy of Sharif Brothers (PML-N) increased debts to Rs23000 billion. Third democracy (PTI) is further increasing the national debts right now.

Wise countries refrain from debts and we consider it credit to borrow money from foreign banks and world financial institutions. Human rights, children and women rights are thingamajig of high societies the poor is victim of social unrests, climate change and natural disasters. Last year 3832 children abuse cases were registered (actual number may be 200% times more) which were 11% higher than those were reported in 2017. Civil societies is limited to lighting candles in favor of minorities.

Inflation means sustained increase in prices of goods and services in an economy over long period. Rise in inflation causes fall in real value of currency. Inflation increases uncertainty that discourages investment and savings, and encourages hoarding in market. Inflation occurs when money supply is more than the economic growth rate. Low inflation rates reduce risk of liquidity trap and currency devaluation. Inflation allows markets reach a new equilibrium at expense of widespread unemployment.

Central banks use monetary policy to control inflation by increasing interest rates and slowing money supply. A low and steady inflation reduces uncertainty and deflation leads to subsequent recessions. The inflation in Pakistan reduced 7.5% national economy in few months. Fixed exchange rates may reduce inflation on expense of macroeconomic stability. Wage and price controls in combination of rationing may be used temporarily to control inflation during national emergencies. However, low prices may cause shortages and rationing resulting in evaporation of investments.

Value of currency is reminiscent of national worth in global arena. Venezuela has lot of oil yet devaluation of her currency has made it one the poor countries. Pegging local currency with dollar is an alternative method to maintain value of currency on expense of speculative attacks. Gold standard is a monetary system in which paper notes are freely convertible to gold in market. Ancient kings used gold and silver coins per se their innate worth.

Devaluation is the reduction in the official value of a currency in relation to other currencies. Nations loosing value of their currency loose national worth too. In presence of sustained inflation cost-of-living adjustment (COLA) adjusts salaries based on changes in cost-of-living index (COLI). In BPS 17 the X-Gen people used to receive basic salary of Rs1400 which increased to Rs14000 for Y-Gen and Rs30, 000 for Z-Gen people. X-Gen people used to live happy life with lower salaries and Z-Gen people are unhappy with even much higher salaries.

Economic stagnation refers to long period of slow economic growth (GDP growth), usually accompanied by high unemployment as well as currency devaluation. It is related to the growth potential so this condition may occur in any country despite its higher growth rate than other countries experiencing no economic stagnation. US Long Depression of 1873 and Deep Depression of 1930s show economic stagnation an integral part of free market based economy. Economic stagnation eventually led to constant spending in defense programs, creating what President Eisenhower called the military-industrial complex, which is leading US economic activity even today.

Low economic growth, low productivity due to energy crisis and high inflation lead to stagflation. US oil embargo in 1973 inflicted stagflation out of which America recovered in 1980s by computer and telecom industries. Innovative technologies can help nations overcome stagflation that refers to rise in inflation as well as unemployment and fall in GDP. IT, AI and IoT experts in universities can help the nation to reduce inflation, stagflation and unemployment by launching innovative technology products. There is little hope of any change as long as fake degree holders occupy positions of genuine PhDs.

Syed Babar Ali chose Dr. Tarik Banuri against merit to lead HEC, who chose relatives of Syed Babar Ali as VC of various universities. Now they all together, as panel of experts, are trying to recruit their race and faith fellows to lead executive academic positions. Chairman HEC, Vice Chancellors and Executives were chosen under different merit criterion fitting to their backgrounds. PTI executives chose the experts who believe in expurgating their roots in Pakistan. To the best of my knowledge, Dr. Tarik Banuri is the first Chairman HEC who has not even enough journals publication to be a professor under HEC criterion. A swarm of locust is eating flesh of undead zombies.

Pakistan has become a heaven for 2% judges, generals, bureaucrats, capitalists, politicians, executives and journalists, and a dark hell for common docile people. Unemployed youth is forced to pay indirect taxes to pay salaries and pensions of judges, bureaucrats and parliamentarians. Politicians are responsible for rising dollar and falling economy. Fakes degrees and fake accounts have defamed Pakistan. Police and Judiciary is responsible for rampant rise in white collar crimes. Every country has good enemies, we have a mean and ugly enemy whose faith system is darker than her face.

I am not hopeless from future of Pakistan, dark clouds will disperse in years, I am worried if PTI fails then this failure will pave the way for return of Ra and Raw. PTI experts are urged to recognize the enemy within to defeat the inflation, uncertainty and stagflation. Those who have no future, start living on the present by send national resources in foreign paradises.

After gas load shedding in winter the electricity load shedding started in first week of May 2019. Debts, inflation, unemployment, social injustice and corruption cases everywhere. Economic experts advise the incumbents and people regard their advice bookish dialogues. A nation which has 50% black and white economy cannot compete the world today. Our foreign debts are $98 billion on which are the major burden on our heads. A few thousand elites have hijacked country the poor has no right to argue. FBR is complex web for poor and elixir for the rich to whiten black money.  After PPP and PML (N) the PTI plans to launch Amnesty Scheme, déjà vu, little hope of success.

People of Pakistan want to use MBS’s formula to recover looted money but courts do not let incumbents to do what Shah Sulman did in Saudi Arabia. President (Ex) Asif Ali Zardari, Prime Minister (Ex) Nawaz Sharif, Chief Ministers, Executives and Civil Servants plead their cases in NAB everywhere. Journalists claim Saudi Formula is the ultimate solution, but judicial system does not allow it. Money launderers openly say they use fake accounts and black money for business. Asif Ali Zardari, Ex-President, said the economy and accountability cannot survive together.

Media debates on economy spread despair which fuel inflation, shortages and currency devaluation as live terror attacks coverage helps terrorists adapt to post action situation. Unregistered mobile SIMS and black money helped terrorist networks. Foreign forces provide them prohibited equipment usually not available in Pakistan. PPP and PML are more sincere in failing PTI than reducing public paucity.

Use of national accountability bureau (NAB) for political revenges has been practice in past governments. PTI looks sincere in across the board accountability of judges, generals, inherited politicians, executives and journalists that is reinforcing catalyst aligning all of them against Imran Khan.


References

Strategy P, India-Pakistan: Bad Debts Come Due, Ocnus.Net, 28 May 2019

Engdahl EW, America is in a debt trap death spiral, Global Research, 2 June 2018.

Syed AM, Economic Courses for Pakistan, Express News, Sunday Magazine, 6 June 2019.

Ali AD, Why business groups do not pay tax, Daily Express News, 15 May 2019.

Web Desk, Number of taxpayers have risen by 30% in last one year: Hammad Azhar, Pakistan Today, 17 December 2018. https://profit.pakistantoday.com.pk/2018/12/17/number-of-taxpayers-have-risen-by-30-in-last-one-year-hammad-azhar/

IMF, Rise of Inflation and Fall of Growth in Pakistan: IMF Outlook Report, Express News, 10 April 2019

Staff, Money launderers behave with indignation when questioned: PM, Pakistan Today, 15 April 2019. https://www.pakistantoday.com.pk/2019/04/14/money-launderers-behave-with-indignation-when-questioned-pm/

Ali AD, Who is how much responsible for economic crisis, Express News, 10 2019.

Talat A, The crushing burden of debt, Dawn, 3 September 2018, https://www.dawn.com/news/1430526
SBP, https://tradingeconomics.com/pakistan/external-debt accessed April 8, 2019
Shahbaz R, Pakistan’s trade deficit skyrockets to historic high, The Express Tribune, 5 April 2019. https://tribune.com.pk/story/1755608/2-pakistans-trade-deficit-skyrockets-historic-high/
IMF, https://www.imf.org/en/Countries/PAK accessed April 8, 2019

Radio, President calls for linking university education to requirements of market, Radio Pakistan, 4 April 2019. http://www.radio.gov.pk/04-04-2019/president-calls-for-linking-university-education-to-requirements-of-market

Arif A, Pakistan’s place in artificial intelligence and computing, Nation, 20 January 2019. https://nation.com.pk/20-Jan-2019/pakistan-s-place-in-artificial-intelligence-and-computing

Yasir M, Software Consultancy is Becoming a Major Part of Pakistan’s IT Exports, ProPakistani, 18 February 2019. https://propakistani.pk/2019/02/18/software-consultancy-is-becoming-a-major-part-of-pakistans-it-exports/


Source:Ocnus.net 2019

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