Flood-hit Pakistan should stop foreign debt payments

A call for Pakistan to stop foreign debt repayments and use the money for flood relief was launched at a press conference at the Lahore Press Club on August 13. The call was launched by the Labour Relief Campaign, a network of eight social and political organisations: the National Trade Union Federation, Women Workers Help Line, Progressive Youth Front, Labour Party Pakistan, Pakistan For Palestine, CADTM Pakistan, Labour Education Foundation and Pakistan Kissan Rabita Committee.

Pakistan is facing the worst disaster in its history, even worse than the devastating earthquake that hit Kashmir five years ago. Around 20 million people are badly affected by the recent flood devastation. Major infrastructure is totally destroyed in many parts of the country. More than 650,000 houses have collapsed, mainly in villages.

Villagers are without drinkable water, food and shelter and are in need of clothes. The situation is dire especially for children and women, who are in desperate need of food and clothing. Disease is spreading fast due to the lack of drinkable water. Flu, fever, diarrhoea and cholera have been noted and are spreading.

In addition to human causalities, the economic loss is in billions of dollars. The loss just in agriculture and livestock is about Rs250 billion (about A$3.25 billion). Although international donors are announcing commitments for relief and rehabilitation, these are nowhere near the scale of the catastrophe.

Suspension legal and justified

Spokespersons for the campaign said that, instead of begging for much-needed aid for relief and rehabilitation, Pakistan should announce unilateral suspension of payments on foreign debt. Currently Pakistan is paying about US$3 billion for debt servicing every year, but its foreign debt of US$54 billion is increasing.

International law provides justification for refusing to pay the external debt. One justification is called “state of necessity”; it exists in situations which make it impossible to meet the very basic needs of the population.

The United Nations Human Rights Commission has adopted resolutions on debt and structural adjustment. One adopted in 1999 asserts: “The exercise of the basic rights of the people of the debtor countries to food, housing, clothing, employment, education, health services and a healthy environment cannot be subordinated to the implementation of the structural adjustment policies, growth programs and economic reforms”.

Pakistan is not able to fulfil the fundamental needs of its 20 million flood-hit people, who have no access to food, clothing, shelter or medicine. Creditors should not expect Pakistan to continue debt repayments, leaving its people hungry and without shelter, schools, hospitals or public services.


There are a number of precedents for debtor countries refusing debt payments because of necessity. Recently the International Monetary Fund (IMF) had to cancel the US$268 million owed to it by Haiti, after the earthquake in 2009.

Argentina went into serious economic crisis in 2001. Argentine leaders had always implemented unpopular policies dictated by the IMF, but now the people came into the streets to protest debt domination. As a result, the country’s president announced the biggest unilateral suspension of foreign debt in history, a total of more than US$80 billion owed to private creditors, countries and the Paris Club.

Burkina Faso is another country that stood up against international financial institutions and refused payment of debts. In 1987, its president, Thomas Sankara, announced unilateral suspension of payment. He said: “The debt cannot be repaid, firstly because if we do not pay, the money lenders will certainly not die, on the other hand if we pay, we will certainly die. Those who have led us into a debt trap have gambled as though in a casino. When they were winning there was no debate. But now when they have lost through gambling, they demand that we repay them. No! According to the rules of the game, we cannot pay and refuse to pay all foreign debts.”

Debt and military spending

Pakistan’s total debt-to-GDP ratio passed 61% this fiscal year, breaching the 60% limit set under the Fiscal Responsibility and Debt Limitation Act. According to the World Bank if the debt-to-GDP ratio exceeds 80%, default is certain. The major portion of the country’s national budget is consumed by debt servicing and defence. Under the circumstances, there is no denying that Pakistan’s greatest source of economic vulnerability is debt. We do not have any other way out of this crisis but to refuse repayment of debt.

The campaign is totally opposed to cuts in the development budget, which have been indicated by the prime minister several times. It is also worried about press reports that the government wants to levy a flood tax on the people and wants to increase the general sales tax rate. This is totally unacceptable. The government should reduce its non-development budget, reduce military expenditures and refuse to pay the foreign debt in order to help the flood victims.

Cancellation could occur via the UN’s newly established Post-Catastrophe Debt Relief Trust Fund, which was set up for this purpose and which can now be accessed by other indebted, low-income countries hit by disasters. The IMF, World Bank and other international financial institutions should cancel the debts of Pakistan. It is time that these institutions change their usual profit-seeking practices.

The Labour Relief Campaign has so far raised Rs300,000 for the relief of flood victims in Baluchistan and southern Punjab. Contributions can be made as follows: Please advise and pay to Citi Bank, New York, USA Swift CITI US 33 for onward transfer to Bank Alfalah Ltd., Karachi, Pakistan A/C No. 36087144 for final transfer to Bank Alfalah Ltd., LDA Plaza, Kashmir Road, Lahore, Pakistan Swift: ALFHPKKALDA for A/C No. 01801876 of Labour Education Foundation.

[Farooq Tariq is the national spokesperson of Labour Party Pakistan.]