Pakistan's poor economy and social structure were evident from partition. Although it aspired towards being a welfare state with a strong economy, money, planning and good governance were needed. Money in the form of loans and grants from foreign countries, agencies and banks flowed into the country.
In the beginning, foreign economic assistance to Pakistan largely took the form of grants. With the passage of time, however, grants increasingly gave way to loans, During the first five year plan (1955 - 60), grants constituted 80 percent and loans 20 percent of the total foreign funds received. By the Fourth five year plan (1970-5), grants fell to 10 percent. There was a slight boost in the fifth and sixth five year plans when relief assistance was provided for the Afghan refuges. By the Seventh Five Year Plan (1988-93), grants had again dropped to 16 percent, followed by a further drop to 9 percent during the Eighth Five Year Plan (1993-8).
Pakistan's Foreign debt has also been on the rise. From US$0.17 billion in 1960-1, it jumped to US$ 25.4 billion in 1999-2000. Most of this foreign borrowing is used for debt servicing, leaving only a small amount for the financing of development projects. In 1999-2000, 57 percent of the budget was spent on debt servicing, 26 percent on defence and the remaining 17 percent on all other expenditure and development.
Most of foreign loans have to be repaid in foreign exchange ( Usually US Dollars ). A country can only earn foreign exchange if it engages in foreign trade, provided that it exports more than it imports. Unfortunately, however Pakistan has a negative balance of trade, meaning that it imports more than it exports, and foreign investment in the country is limited at US$54.3 million in 1999-2000. An alternative source of foreign exchange is the remittances sent by Pakistanis working abroad. Since 1972-3, this has become a good source of foreign exchange earnings. In 1972-3, US$ 136 million were remitted to Pakistan by workers from abroad. The remittances peaked in 1982-3, when a total of US$ 2885 million were remitted. Since then, however, remittances have decreased. It was US$ 984 million in 1999-2000.
Unfortunately, remittance alone cannot meet Pakistan's demand for foreign exchange, so the country has to resort to obtaining foreign loans. These foreign loans are used for debt servicing and so, the cycle continues.
In the beginning, foreign economic assistance to Pakistan largely took the form of grants. With the passage of time, however, grants increasingly gave way to loans, During the first five year plan (1955 - 60), grants constituted 80 percent and loans 20 percent of the total foreign funds received. By the Fourth five year plan (1970-5), grants fell to 10 percent. There was a slight boost in the fifth and sixth five year plans when relief assistance was provided for the Afghan refuges. By the Seventh Five Year Plan (1988-93), grants had again dropped to 16 percent, followed by a further drop to 9 percent during the Eighth Five Year Plan (1993-8).
Pakistan's Foreign debt has also been on the rise. From US$0.17 billion in 1960-1, it jumped to US$ 25.4 billion in 1999-2000. Most of this foreign borrowing is used for debt servicing, leaving only a small amount for the financing of development projects. In 1999-2000, 57 percent of the budget was spent on debt servicing, 26 percent on defence and the remaining 17 percent on all other expenditure and development.
Most of foreign loans have to be repaid in foreign exchange ( Usually US Dollars ). A country can only earn foreign exchange if it engages in foreign trade, provided that it exports more than it imports. Unfortunately, however Pakistan has a negative balance of trade, meaning that it imports more than it exports, and foreign investment in the country is limited at US$54.3 million in 1999-2000. An alternative source of foreign exchange is the remittances sent by Pakistanis working abroad. Since 1972-3, this has become a good source of foreign exchange earnings. In 1972-3, US$ 136 million were remitted to Pakistan by workers from abroad. The remittances peaked in 1982-3, when a total of US$ 2885 million were remitted. Since then, however, remittances have decreased. It was US$ 984 million in 1999-2000.
Unfortunately, remittance alone cannot meet Pakistan's demand for foreign exchange, so the country has to resort to obtaining foreign loans. These foreign loans are used for debt servicing and so, the cycle continues.
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