By Justice Markandey Katju–
(Justice Markandey Katju is a former Judge, Supreme Court of India, and former Chairman, Press Council of India. The views expressed are his own)
Soon after the IMF decision to grant a $3 billion loan to Pakistan, the country’s Prime Minister Shahbaz Sharif repeatedly uttered “Alhamdulillah” (Praise be to god) in a press conference.
Many Pakistanis are gloating over the IMF loan as if it will end their economic woes. The Pakistan stock exchange has rallied, currency exchange rate has improved, and there is an atmosphere of glee and revelry in some quarters.
However, there is a dark side to the picture.
- It is a loan, not a gift. Pakistan already has external debt of over $126 billion, to which this will be added. This loan will cover less than the cost of Pakistan’s monthly import bill.
- Loans carry interest. The fresh loan will add to the debt servicing bill, already at around $4.5 billion.
- The iMF reportedly set very strict conditions before granting this loan. For instance,
- (a) the heavy subsidy on electricity supplied will be removed. This will raise electricity rates to historic heights, affecting everyone in Pakistan.
- (b) Duty on petroleum products will increase sharply
- (c) There will be an additional $220 billion tax burden
- (d) Prices of essential commodities, including food, will rise
This reminds one of the situation just before the French revolution of 1789. The French monarchy was heavily indebted to foreign bankers (mainly Dutch) on account of supporting the American War of Independence (1775-81), and even more because of the huge deficit between government income and expenditure (primarily because, by feudal convention, the nobility could not be taxed).
The then French finance minister, Jacques Necker, who dared not tax the powerful nobles, took loans from foreign banks to pay the huge debt. His successor, Charles-Alexandre de Calonne, went even further. He initiated huge public spending, thinking this will impress the creditors into granting more loans.
This plan backfired. Dutch and other foreign bankers realised they would never recover the loans (what to say of interest), and so a time came when they outright refused to grant further loans. This led to the calling of the Estates General in 1789 and the French Revolution, in which many heads rolled.
I am afraid the Shahbaz Sharif government is heading in the same directiion. Can a government run forever on foreign loans? The people of Pakistan are already suffering terribly due to the economic crisis. Taxing them further, directly or indirectly, as the IMF loan in essence requires, may well break their backs.
