INTERNATIONAL DEBT AND DEPENDENCY.pptxINTERNATIONAL DEBT AND DEPENDENCY.pptx

INTERNATIONAL DEBT AND DEPENDENCY.pptx

1. INTERNATIONAL DEBT AND DEPENDENCY

2. INTERNATIONAL DEBT: Many people have borrowed money to buy supplies, equipment, or a house. Countries do the same. They borrow money from private capital markets, international financial institutions, and governments to pay for infrastructure such as roads, public services, and health clinics; to run a government ministry; or to purchase weapons. Like individuals, countries pay back the principal and interest on the loans they take out. But there are important differences. If a person borrows money, he or she receives the money directly and pays it back according to the terms and conditions of the loan. But if a country borrows money, the citizens are not necessarily notified or informed of the purpose of the loan or its terms and conditions. In practice, many governments have used loans for projects that do not meet minimum standards of social, ecological, or even economic viability. At times, these loans have been used to enrich a small group of people or have been transferred out of the country to the private bank accounts of government officials. INTERNATIONAL DEBT

3. A   grant  is a quantity of money, i.e., financial assistance, given by a government, organization, or person for a specific purpose. Unlike a loan, you do not have to pay back the money. In some cases, the receivers of study grants who abandoned their courses have to pay back the money. The financial assistance may be for a student to study or for a team to carry out research. The government may also award grants for home insulation, community projects, or setting up businesses . If a country faces drought earthquake, floods and other natural calamities all may loss of lives therefore to compensate for such all other countries , governments and international assistance to affected country GRANTS:

4. A loan used to developed real property which includes not just construction of the improvements but also excavation work infrastructure such as storm sewers and roads and the holding costs of property There are many institution like IBRD,IDA and MIGA Loans are provided till 50 years at concessionary rates and easy terms DEVELOPMENT LOANS:

5. Sometime the government of developed countries from a consortium in order to provide loans to poor countries In case of aid Consortium to Pakistan such official loans are given under commercial basis Most of loans are given for long time concession is also granted in the repayment of loans and interest charges OFFICAL LOANS

6. Foreign resources do not represent assistance or aid Rather it is inflow of capital on the commercial basis The foreigners lend they will entitled to get the interest against the funds lent They make direct investment in the business they will share profits The investment made by A merican K orean and British investor in the field of power generation and oil and gas exploration etc. FOREGIN PRIVATE INVESTMENT

7. Under tied loans the donor country imposes certain restrictions The donor country may force the recipient country to purchase the machinery , raw material , capital goods and technical assistance from donor country On other hand that foreign assistance which is provided without imposing restriction is called united loans TIED AND UNITED LOANS

8. If the lending's and borrowings take place in between two governments such will be case of bilateral loans Pk borrows from US it will be case of bilateral loan BILATERIAL AND MULTI-LATERAL LOANS

9. IT IS THE IMF which advance loans or credits purely on the BOP consideration It means that IMF provides loans to those member countries under different credit facilities who suffer from deficit in their BOPs FINANCING OF BOP

10. REMOVE PAUCITY OF CAPITAL: THE countries like Pakistan are entrapped in vicious circle of poverty. Because of low income , the saving ratio remain low. Because of law savings the investment level remain low Low taxable capacity remain low and government earning also low Such situation country has to face shortage fund Greater population the demand of road hospital etc. also increase IMPORTANCE OF FOREGIN AID TO PAKISTAN

11. COST are higher but capital output ratio is also fairly higher Foreign assistance not only there will be an inflow of capital better technology Both combination techniques and foreign capital will be helpful in removing economics backwardness REMOVAL OF TECHNOLOGY BACKWARDNESS

12. Transport and Logistics; Mass Urban Public Transport; Municipal Services – Water and Sanitation, solid waste management, low cost housing, health and education facilities; and Small Scale and Rural Energy Project ROADS CONSTRUCTION OF INFRA-STRUCTURE

13. RECOMMENDATIONS Provincial Governments should establish a policy framework for PPPs in roads. Special cell should be created to handle BOT projects and to provide a ‘one window operation’. Members should be drawn from relevant Departments and should be headed by a secretary level person. Land Acquisition Act should be amended to streamline the procedure of value assessment and quick dispersal of compensation. In case of litigation the Government council to plead the case and not leave the concessionaire alone. Necessity of notification by the Government for annual increase be dispensed with and due amendments in the Highway Act should be carried out to make the concession agreement clauses binding on all concerned. Regulatory body to be set up to investigate the loss of cash flow for investors due to adverse Government actions like opening up of alternative routes, not building connecting roads. Alternative sources of revenues need to be explored. One example of this is to allow the use of land on the sides of the road to be used as commercial property. In this way the developer makes up for the loss of income due to lower toll charges. This scheme has been hugely successful in India. A special portfolio to be assigned to the banks for financing BOT projects. Banks should be mandated to disperse the loan, once found feasible, at a mark up decided by the State Bank and should be linked with their Annual performance.

14. sr description improvements construction 1 National highway 6500 2500 2 Provincial road 6600 4000 3 Special area roads 1000 500

15. Pakistan do not posses sufficient funds to establish key industries like steel and iron automobiles light and heavy engineering Foreign aid is realized in establishment of steel , iron and engineering industries ESTABLISHMENT OF KEY INDUSTRIES

16. Poor countries there exist the deposits of oil, gas, iron and other mineral Resources at disposal of poor countries are not adequate to explore and extract that resources Middle east the oil and gas is being explored with the assistance EXPLORATION OF Natural resources

17. Technical and financial assistance the process of industrialization The increased industrialization will have the effect of raising level of employment Pakistan like poor country where population is rapidly increasing and lands are feting incapacities RAISING THE LEVEL OF EMPLOYMENT

18. Project aid Non- project aid Technical assistance The aid to remove deficit TYPES OF FOREGIN AID W.R.T PAKISTAN

19. Internal debt: nternal debt  or  domestic debt  is the part of the total  government debt  in a country that is owed to lenders within the country. Internal government debt's complement is  external government debt . Commercial banks, other financial institutions etc. constitute the sources of funds for the internal debts. Internal public debt owed by a government (money a government borrows from its citizens) is part of the country's  national debt . It is a form of  fiat  creation of  money , in which the government obtains finance not by creating it  de novo , but by borrowing it. The money created is in the form of  treasury securities  or  securities  borrowed from the  central bank . These may be traded but will only rarely be spent on  goods  and  services . In this way, the expected increase in  inflation  due to the increase in  national wealth  is lower than if the government had simply created the money  de novo  and increased the more liquid forms of wealth (i.e., the  money supply ). The  Rothschild Family  played a major role in the history and acquisition of control of many nations money supplies and currency. Debt and its type

20. Gross external debt at a given point of time is the amount of disbursed and outstanding liabilities of residents of a country to non-residents. Countries use external debt in order to fill the gap between desired expenditure levels and domestically available resources. Governments also issue foreign currency debt in order to signal their commitment to stable exchange rates and prices. A key incentive for governments to use foreign debt heavily is that it minimizes current interest costs, but doing so leaves the country vulnerable to certain risks. The government manages its debt in order to raise the required amount of resources subject to the lowest possible medium to long-term cost and consistent with a prudent degree of risk. Poor debt management poses risks for both the public and private sectors in the form of economic instability, insolvency, debt distress, and fiscal crisis. In order to prevent such eventuality, a government needs to identify the various risks to its debt stock, and formulate strategies to counter or minimize these risks. Risks can be classified into two main categories; market risk, and country specific risk. The stock of outstanding debt of any country is vulnerable to market risks regardless of the origin, size, average tenure, and other characteristics of the debt. Market risk is measured in terms of potential increase in debt servicing costs associated with changes in market conditions such as interest rate risk, exchange rate risk, and credit risk. Country specific factors include the economic, social, and political stability of the country, and general investor sentiment about the economy. External debt

21. liabilities End-June 2011Q3 2004 2005 2006 2007 2008 2009 2010 (In billions of U.S. dollars) 1. Public and Publically Guaranteed debt 29.9 31.1 32.9 35.3 40.6 42.6 43.1 45.6 A. Medium and long term(>1 year) 29.9 30.8 32.7 35.3 39.5 41.1 42.3 44.6 B. Short Term (1 yr ) 1.7 1.3 1.6 2.3 2.9 3.3 3.4 3.8 3. IMF 1.8 1.6 1.5 1.4 1.3 5.1 8.1 8.9 Total External Debt (1 through 3) 33.4 34.0 36.0 39.0 44.9 51.1 54.6 58.3 Of Which Public 31.3 32.1 33.9 36.5 40.7 45.9 50.1 53.4 4. Foreign Exchange Liabilities 2.0 1.8 1.6 1.5 1.3 1.3 1.3 1.2 Total External Debt & Liabilities (1 through 4) 35.3 35.8 37.6 40.5 46.2 52.3 55.9 59.5 (of which) Public Debt 31.3 32.1 33.9 36.5 40.9 46.3 49.5 53.6

22. 2015   2016   2017   2018   2019   External Debt (% of GDP) 24.1   26.5   27.4   30.3   38.2   Pakistan - External Debt Data

23. According to official sources, public debt shall be reduced to less then 60 percent of estimated GDP until 2017-18 and thereafter a 15 year transition has been set towards a debt to GDP ratio of 50 percent. The government has made amendments to the Fiscal Responsibility and Debt Limitation (FRDL) Act by defining the ceiling for the Federal Government budget deficit at 4 percent of the GDP excluding foreign grants during the period 2017-18 to 2019-20 and 3.5 percent of GDP thereafter. Gross public debt was at Rs 20,873 billion by end March 2017 while net public debt was Rs 18,893 billion. Gross public debt recorded an increase of Rs 1194 billion during first nine months of current fiscal year. Out of this total increase, hike in domestic debt was Rs 1121 billion while government borrowing from domestic sources for financing of fiscal deficit was Rs 1018 billion. This differential is mainly attributed to increase in government credit balances with the banking system. Similarly, increase in external debt contributed Rs 73 billion in public debt. Revaluation gain on account of appreciation of US dollar against other foreign currencies reduced the impact of net external inflows on external public debt portfolio. The average cost of gross public debt was reduced by 40 basis points during first six months of current fiscal year owing to smooth execution of the Medium Term Debt Management Strategy (MTDS). The average cost of domestic debt portfolio was reduced by over 50 basis points during first six months of current fiscal year while the average cost of external loans obtained by the present government comes to around 3 percent which is significantly lower than the domestic financing cost even after a margin of capital loss due to exchange rate depreciation is added. The government was able to mobilize external inflows from multilateral and bilateral development partners and continued its presence in international capital markets through the issuance of Sukuk during first nine months of current fiscal year. An improvement was observed in most of the public debt risk indicators during last three and half years in line with the objectives set forth in Pakistan’s first MTDS (2013). Refinancing risk of the domestic debt portfolio reduced through lengthening of the maturity profile as percentage of domestic debt maturing in one year was reduced to 52.7 percent at the end of December 2016 compared with 64.2 percent at the end of June 2013 . DEBT REDUCTION STRATEGY

24. Exposure to interest rate risk was also reduced as the percentage of debt refixing in one year decreased to 45.5 percent at the end of December 2016 compared to 52.4 percent at the end of June 2013. Similarly, share of external loans maturing within one year was equal to around 31.9 percent of official liquid reserves at the end of December 2016 as compared with around 68.5 percent at the end of June 2013 indicating improvement in foreign exchange stability and repayment capacity. The public debt analysis may be incomplete without reporting contingent liabilities. Contingent liabilities are not added to the overall debt of the country. Therefore, public disclosure of information about guarantees is an essential component of fiscal transparency. Contingent liabilities of Pakistan are guarantees issued to Public Sector Enterprises (PSEs). During first half of current fiscal year, the government issued fresh/rollover guarantees aggregating to Rs 368 billion or 1.2 percent of GDP. The outstanding stock of government guarantees as at end December 2015 was recorded at Rs 838 billion. It is imperative to have a comprehensive debt management strategy aiming at debt sustainability and enhancing the debt servicing capacity of the country. Owing to its vital importance and indispensable nature, the government updated its MTDS which contains a policy advice on an appropriate mix of financing from different sources with the spirit to uphold the integrity of the Fiscal Responsibility and Debt Limitation Act. In accordance with the approved strategy, the government was required to lengthen the maturity profile of its domestic debt and mobilize sufficient external inflows in the medium term. – APP