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8/9/2019 Joshua Greenstein Pakistan
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Pakistan The Geopolitics of Debt Crises
and Relief
8/9/2019 Joshua Greenstein Pakistan
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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
8/9/2019 Joshua Greenstein Pakistan
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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
8/9/2019 Joshua Greenstein Pakistan
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8/9/2019 Joshua Greenstein Pakistan
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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
8/9/2019 Joshua Greenstein Pakistan
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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
8/9/2019 Joshua Greenstein Pakistan
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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
8/9/2019 Joshua Greenstein Pakistan
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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'
8/9/2019 Joshua Greenstein Pakistan
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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
8/9/2019 Joshua Greenstein Pakistan
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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
8/9/2019 Joshua Greenstein Pakistan
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(e$ative )e*erc+ssions of 9,11
-ttacks. /ar in -f$hanistan
•
8/9/2019 Joshua Greenstein Pakistan
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Friends -$ in
• %eptember , !!1$% lifts allsanctions related to nuclearpro'ram
• >ctober ), !!1 ush announcesaid pac"a'e that (ill ma"e Pa"istanthird lar'est recipient of 7merican
aid
• December ), !!1
8/9/2019 Joshua Greenstein Pakistan
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December !!1 Paris Club Debt Treatment
7mount treated: 1-++ billion
of 13-33 billion total o(ed to ParisClub.
Terms: 7d hoc
• Commercial credits to be repaido2er 3 years, 0 year 'raceperiod
• >D7 Credits to be repaid o2er3 years, 10 year 'race period
at concessional rates• Defer interest rates on
restructured debt for t(o years,durin' follo(in' t(o years, !interest rates deferred
8/9/2019 Joshua Greenstein Pakistan
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The Di&erence a 5ear Ba"es
Paris "lubTreatments
January #$!#%%1
&ecember 1$!#%%1
7mount Treated 1-)0 illion 1-++ illion
Kon>D7 CreditsPayment Period 1 years 3 years
Kon>D7 CreditsGrace Period
3 years 0 years
>D7 CreditsRepaymentPeriod
! years 3 years
>D7 Credits
Grace Period
1! years 10 years
8/9/2019 Joshua Greenstein Pakistan
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&''1 !"F P)0F Pro$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
8/9/2019 Joshua Greenstein Pakistan
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S+stainable
8/9/2019 Joshua Greenstein Pakistan
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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
8/9/2019 Joshua Greenstein Pakistan
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2ack to the !"F