joshua greenstein pakistan

8/9/2019 Joshua Greenstein Pakistan

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Pakistan The Geopolitics of Debt Crises

and Relief


2/20

Overview

• 3 Paris Club debt treatments in 3 year period: January 1999, January !!1, December !!1

• Geopolitics, especially Pa"istan#s relationshipto the $%, and its e&ect on onset of crisis andnature and timin' of relief

• Pa"istan#s economic circumstances and lon'term problems (ith debt


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Pakistan’s Economy

• Population: 1)*,+,9+9 July!!9 est-.

• GDPPPP.: /+0-) billion !!est-.

• GDP per Capita PPP.: /,*!!!! est-.

• Population belo( po2erty line:+ 45!06!* est-.

• 7'riculture ! of GDP, +3 of

8abor force

• Dependence on commodities:

Cotton6tetiles6clothin'consistently ma"e up more than*! of eports

8ar'est import is petroleum


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5/20

Pakistan’s Fiscal Deficit Problem

19199 7;G- 4


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May 1998-Pakistan Tests NuclearWeapons

June 1998- US imposes sanctions on banklending to goernment! aid! military sales

Suspension in aid! bilateral and multilaterallending


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From Sanctions to Crisis

• 8oss of in2estor conEdence, steep decline inpri2ate capital Fo(s

• %uspension of bilateral and multilateral loans

•

Decline in remittances• Pa"istan freees forei'n currency

(ithdra(als

• Depletion of forei'n reser2es, collapse in

currency• Pa"istan Rupee falls from +*:1 to *0:1

a'ainst dollar in matter of months


8/20

199 Debt Crisis

• Total debt, forei'n and domestic,eceeds GDP

• Debt ser2icin' accounts for *) of

'o2ernment re2enues• Total eternal debt approimately 30

illion, 0) of GDP

• =ternal debt ser2icin' eHual to 00 ofeport earnin's

• January 1999


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January 1999 Paris Club Treatment

7mount treated: 3-0+illion

Terms: @ouston Terms

• Pa"istan also restructuredabout 1 billion in shortand medium term debt(ith commercial ban"s atthis time

• /0)0 Billion from


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1999 !"F Policies and #ar$ets

Goals:• Reco2ery of 'ro(th, reduction in inFation,

reduction of current account deEcit, stabiliationof debt GDP ratio

Policies:• 7llo( Rupee to Foat• Reduction in tari&s, a'ricultural subsidies• roaden ta base• Reduce bud'et deEcit from 0-0 GDP to 3-3

GDP in t(o years, throu'h IEscal consolidation,increased re2enues, and cuts in Iunproducti2espendin'


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1999%&'''

• Debt treated relati2ely small percenta'e oftotal debt

• Bore %anctions follo( >ctober 1999 coup by

Busharraf • Rupee Foated in !!!, de2alues further

• Kot meetin' 'oals on ta collection andre2enue

• 4iscal deEcit 'ro(s in !!!

• Debt ser2icin' for 451999!!! /0-*) billion


12/20

January !!1 Paris Club Treatment

7mount treated: 1-)0 billion

Terms: @ouston Terms

•

KonoLcial de2elopmentassistance credits are tobe repaid in 1 years, atmar"et rate, 3 year 'raceperiod

•

>Lcial de2elopmentassistance credits to berepaid o2er ! years, 1!year 'race period, atconcessional rates


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(e$ative )e*erc+ssions of 9,11

-ttacks. /ar in -f$hanistan

•


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Friends -$ in

• %eptember , !!1$% lifts allsanctions related to nuclearpro'ram

• >ctober ), !!1 ush announcesaid pac"a'e that (ill ma"e Pa"istanthird lar'est recipient of 7merican

aid

• December ), !!1


15/20

December !!1 Paris Club Debt Treatment

7mount treated: 1-++ billion

of 13-33 billion total o(ed to ParisClub.

Terms: 7d hoc

• Commercial credits to be repaido2er 3 years, 0 year 'raceperiod

• >D7 Credits to be repaid o2er3 years, 10 year 'race period

at concessional rates• Defer interest rates on

restructured debt for t(o years,durin' follo(in' t(o years, !interest rates deferred


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The Di&erence a 5ear Ba"es

Paris "lubTreatments

January #$!#%%1

&ecember 1$!#%%1

7mount Treated 1-)0 illion 1-++ illion

Kon>D7 CreditsPayment Period 1 years 3 years

Kon>D7 CreditsGrace Period

3 years 0 years

>D7 CreditsRepaymentPeriod

! years 3 years

>D7 Credits

Grace Period

1! years 10 years


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&''1 !"F P)0F Pro$ram

Goals:

• Raise 'ro(th to *

• Neep inFation in chec", 'ro( forei'n reser2es

•

%tren'then re2enue throu'h impro2ements inta collection

• 7 Irapidly 'ro(in' share of bud'et (ill bespent

on I'ro(thenhancin' and po2erty reductionand reduction in share of spendin' related todefense


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S+stainable


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&'' 0lobal Financial Crisis

• Pa"istan already had second (orst %OPcredit ratin' in (orld, once credit crisishits, lendin' dries up

•

%pi"e in oil pricesPa"istan maor oilimporteruses forei'n reser2es to pay forimports

• 4orei'n reser2es do(n )0 in one year

• %till o(e 3 billion total in concessionaryloans to


20/20

2ack to the !"F

joshua greenstein pakistan

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