Saturday, 7 February 2015

write a short note on FOREIGN DEBT

Need of foreign capital:

       Pakistan has been relying on the foreign borrowing since 1950’s. The external debt is steadily rising as the year pass. The need for foreign resistance is due to a number of factors which in brief as under.

(i)     Scarcity of resources for upgrading the productive capacity of the economy.
(ii)    Persistence of large current account deficits in the balance of payments.
For development of basic economic infrastructure.
Updating the traditional technology of production for attaining global competitiveness.
Exploration of natural resources.
Rising real cost of borrowing.
Wasteful use of borrowed resources.

External debt liability
   The external debt and liabilities (PDL) at the end of march 2012 were Rs.4848 billion. There is an increase of Rs.124 billion dollar over the previous year.

Incidence of debt burden.
    The incidence of debt burden is gradually declining in the country the external debt and liabilities were 29.4% of GDP at the end of fiscal year 2004-05. it has declined to 23.3% GDP by end of march 2012.

Types of foreign aid.

       the bulk of foreign capital received through loans and grants was tied to specific projects or commodities. The result of this tied aid is that the variety of goods and services purchased on credit are above average to world market prices. The purchase was/is also confined to donor countries. The major types of foreign capital inflow to Pakistan are also confined to donor countries. The major types of foreign capital inflow to Pakistan are as under.

Project assistance.  The largest component of foreign capital aid to Pakistan has been in the form of project assistances. These projects like irrigation  project, industrial and communication networks etc. are of long gestation period. Since the aid is mostly tied to the projects and the donor countries, they therefore gain control over the large proportion of development expenditure of our country. The acquiring of control over the development expenditure is and has proved harmful many a time to the interest of the country.
Non project aid. The share of non project aid consists of (a) non food and (b) food aid.
Technical assistance. Pakistan also receives foreign aid under technical assistance. This aid is spent on the services of foreign experts who are associated with various projects of overall planning and policy making. The foreign experts are paid high salaries.
Balance of payments support (BPS). Foreign aid is also received for covering the export-import gap.
shift in the composition of capital inflow. There has been a marked shift in aid composition. The grant and grant like assistances has been replaced with loans repayable in foreign currency.

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