The Express Tribune explains

foreign debtIn a series of charts and maps, The Express Tribune explains Pakistan's

foreign debt, how it works, and how, for all the calls of 'trade not aid', the dependence looks set to

continue.Story by: Saim Saeed and Khurram

Siddiqui Creative by: Sawant Shah and

Usman Khalid

Foreign debt is simply the money that a government

owes either to other countries, or private individuals and organizations that belong to other countries. Almost every country in the world borrows money from other countries, regardless of whether the country is rich or not. Because the world economy is so inter-connected, it is sometimes easier for a government to borrow from other countries than to borrow domestically. Borrowing on a state level is not unlike borrowing individually: cash becomes immediately available; it allows for expenses to

be paid when one does not have the spending power. But the drawbacks are also similar: high interest rates imposed by loan sharks, and eventual bankruptcy (among countries, it's known as default) if the debt isn't paid. There's nothing necessarily wrong with borrowing - as long as one is able to pay the money (with interest) back on time. But that cannot be said for . . .

1 Pakistan's Foreign Debt

$47 billion.That's a lot. If this number is distributed across the population, each Pakistani

currently owes Rs82,627. But as this feature is going to show, it's far smaller

than what some other countries owe. That should not be cause for comfort,

however. Just because Pakistan's foreign debt is much smaller than other

countries does not mean that Pakistan has to worry less, or that its finances are

in order. Far from it.

Despite owing a lot of money to other countries, a lot of countries still manage

to be financially stable because the same countries are net creditors, meaning

that they are owed more money than they owe to others. This is not the case

with Pakistan. A country that is unable to pay its debt goes into default, like

what has happened recently in Argentina, Greece and Zimbabwe. On various

occasions, Pakistan has been close to defaulting but has been saved by last

minute emergency loans. Pakistan's dependence on foreign loans, then, has put

in a 'debt trap', meaning that it has to borrow more money to pay off the loans it

already owes.

2A history of dependence (1961 - 1985)

This chart demonstrates how intricately foreign assistance to Pakistan has

been tied to its political conditions. The need for foreign assistance began

shortly after independence. Pakistan received $121 million from 1951-1955.

That figure nearly tripled in the next five years as Pakistan began to play an

increasingly important role in the Cold War. A look at foreign assistance from

1961 to 1985 reveals some interesting, if not surprising, trends that correspond

to Pakistan's politics. Foreign assistance dipped right after 1965 and 1971, as

the international community placed sanctions on both Pakistan and India for the

wars. Foreign aid also decreased after Ziaul Haq's coup, a move hardly popular

with democracy supporting countries. But after the Soviet invasion of

Afghanistan, the aid started flowing again. It was during Ziaul Haq's regime that

Saudi Arabia also started giving money to Pakistan.

3A history of dependence (1986 - 2010)

Foreign assistance peaked in Pakistan by the end of the Cold War. Throughout

the 90s, American aid had significantly declined because of sanctions put in

place over Pakistan's nuclear program, and partly because of the United States'

withdrawal from the region. Aid actually decreased after Pakistan eventually

conducted nuclear tests in 1998. It declined further after Musharraf's coup in

1999. Still, Pakistan's help was again required after the attacks on September

11 as part of the American 'War on Terror', and the aid started flowing again.

4Pakistan's ever-dwindling foreign exchange reserves

Foreign exchange reserves is the foreign currency that a country keeps to

make payments to other countries, mostly for importing things. While countries

keep a host of currencies, the most common is the American dollar. This chart is

a useful indication of how precarious Pakistan's foreign reserves are. The scale

is simple: how many months of imports can a country's current stock of foreign

reserves pay for? In Pakistan's case: not many. Last year, Pakistan barely had

enough cash to pay for six weeks's worth of imports, and it's one of the main

reasons why Pakistan has to borrow. In fact, it was to stave off this crisis that

the government took out a $6.6 billion loan from the IMF last year. The loan is to

be disbursed over three years, to make sure that Pakistan's reserves are shored

up.

5Remittances - Pakistan's saviour

Foreign debt almost always requires repayment in foreign currency, which

renders Pakistan's foreign exchange reserves perpetually in danger of emptying.

Over the years then, Pakistan has relied increasingly on money sent back by

Pakistanis working abroad. Remittances have provided an immediate, steady

and increasing flow of foreign exchange that have helped replenish Pakistan's

reserves. This chart shows a remarkable rise in remittances, and while the chart

ends in 2008, remittances have more than doubled since then - in 2014, they

stood at $15.8 billion, making remittances recession-proof. Counter-intuitively,

the trend is more a reflection of Pakistan's depressing economic outlook than a

reason for optimism. It highlights that an increasing number of Pakistanis are

leaving Pakistan to find work. That many of the workers are highly skilled may

sustain the increase in remittances, but it also highlights brain drain.

6Breakdown of economic aid

Pakistan's economic priorities have changed over the years, and they mirror

both global technological advances and Pakistan's own shifting economic

priorities and needs. This chart shows the different sectors in which Pakistan

received foreign aid. During the early 90s, heavy investment shifted from

textiles to power. In the late 00s there was a significant communications boom

as internet and telecommunications companies expanded and invested in

infrastructure. One should also note how PIA shows up frequently on this table.

Many governments (and other countries) have been throwing money at the

airline for decades now; its economic conditions do not seem to have improved.

(SBP)

7Who gives money to Pakistan?

Most countries that constitute the list of Pakistan's debtors are familiar. They

include the United States, France, Canada, the United Kingdom, and other

predominantly rich, western countries. But a number of countries have also

given to Pakistan that may surprise, such as the former republic of Yugoslavia,

Czechslovakia, Hungary and Romania. Libya was also a regular contributor at

one point; that Lahore's premier cricket venue is named after Moammar Gaddafi

should not surprise. The map on the right highlights the countries that have

given Pakistan money at some point in Pakistan's history.

8The Paris Club

A large portion of foreign aid to Pakistan comes from consortiums. A

consortium is a group of countries that collectively decides to give aid. In

Pakistan's context, the consortium in question is the Paris Club, a group of 20 of

the world's largest economies. The countries on the list are hardly surprising

except for Israel, which, for Pakistan, is slightly awkward.

9Pakistan and the US

The United States is, and has been, Pakistan's biggest foreign aid provider.

According to a study done by the Congressional Research Centre, the US has

given almost $50 billion in direct aid since 1951. This chart comprehensively

describes both the ebb and flow of Pakistan's relationship with the US, and how

much of it was centred around security. The chart indicates how military aid to

Pakistan can be divided in three specific periods: the Ayub era, when relations

were good until the '65 war; under Ziaul Haq, when the Soviet Union invaded

Afghanistan; and after 9/11 as Pakistan willfully participated in the Bush-led

'War on Terror'. Very little aid was disbursed during the 90s as sanctions for

Pakistan's nuclear program kicked in. The Kerry-Lugar Bill, passed in 2010,

ensured that American aid to Pakistan continues beyond this timeline as well,

providing at least $1.5 billion per year in development programs.

10A breakdown of Pakistan's foreign debt

In this chart, we see snapshots of whom Pakistan owed money at various

stages in its recent history. This chart (like the others) is a reflection of the geo-

political relations of its time. Pakistan has owed money to countries that don't

exist any more, like East Germany and Yugoslavia. Iran too was owed money

before its revolution in 1979, and good relations with Libya meant more money

(as well having a stadium named after its leader). On the other hand, Pakistan's

relationships with Saudi Arabia and China, at least monetarily, show gradual

progression compared with long-time debt owed to the United States and Japan.

11Pakistan and the IMF

The International Monetary Fund (IMF) is an international organization that,

among other tasks, also functions as a lender to countries that need money

urgently. As this chart shows, Pakistan is a frequent customer. The green line

shows Pakistan's payments to the IMF, and it is roughly equal to the money

Pakistan has received (in yellow). According to IMF's own data, the organization

has disbursed more than $10 billion since 1984. The spike in recent years is part

of an agreement between Pakistan and IMF to stave of Pakistan's balance of

payment crisis. Recently, Pakistan's dollar reserves are almost always close to

empty, making it unable to pay for more than a few months' worth of imports.

To prevent Pakistan from defaulting, IMF lends money to Pakistan on certain

conditions. Essentially these conditions broaden Pakistan's tax base, increase

revenue, privatization, deregulation, and are meant to push Pakistan to

implement reforms that strengthen its economy. Though there's plenty of

controversy both within Pakistan and without over whether these reforms do

more harm than good.

12Pakistan's debt servicing

Foreign aid can sometimes be a misnomer; almost all of the 'aid' Pakistan

receives needs to be paid back. The following chart shows how much money

Pakistan has spent each year paying back the debt it owes - with interest. Debt

servicing in 2004 was particularly high because Pakistan repaid $1.4 billion to

the Asian Development Bank. In fact, this year, Pakistan spent almost half its

annual budget on debt servicing, approximately $11.5 billion, although that sum

is meant for both foreign and domestic debt. These payments then, take up

precious resources in a country that is already wont to spend on education and

health.

13Net aid to Pakistan

This chart essentially highlights Pakistan's debt trap - Pakistan needs to borrow

in order to pay back, often within the same year. As this chart shows, the net aid

Pakistan receives every year (after debt servicing is taken into account) is a

fraction of the money that originally comes in. In fact in some years there has

been a net outflow, when more money actually went out of Pakistan than what

came in. The net aid Pakistan received from 1990-2007 on average was only

15% of the aid Pakistan actually received.

14Debt rescheduling

A look at this chart shows a healthy decrease in debt during the early 2000s.

Don't be fooled into thinking Pakistan was getting its house in order. As of

November 1 2001, Pakistan owed the Paris Club $13 billion. Then the War on

Terror began, and the United States needed Pakistan's assistance in fighting it.

So it was decided that the debt would be rescheduled to 15 years later (the first

payment is to be made in 2017). Despite the relief in foreign debt, Pakistan's

continuing inability to manage its finances led to a dramatic increase in

domestic debt, which more than doubled between 2009 and 2013 under the PPP

government.

15Debt forgiveness

It is rarely ever the case that debt is forgiven. If the debtors are charitable, debt

is rescheduled or it is provided with concessions like repayment in local

currency or reduced interest. In one of those rare instances, Pakistan's debt was

forgiven in the years immediately after the 9/11 attacks. This chart shows how

some of the debt was forgiven, but it also shows how the forgiven debt was only

due to exceptional circumstances, and unfortunately, not to recur.

16How long it takes to start paying back debt

This chart shows the grace period that Pakistan has had over the years before

the first repayment has to go. While the average has more or less been around

five to six years, that time period has been contingent on politics (like every

other chart in this feature). In the years after 9/11, the Paris Club rescheduled

Pakistan's debt to 2015, and the chart shows how the grace period increased

after its lowest point at three years in 2001, before coming back down again as

relations with the US soured (again).