World Bank data shows an increasing trend of indebtedness in the world’s emerging regions since 2012. Will this debt be a precursor to higher development, or instead to a decline?

The trends of debt owed to foreign lenders by four emerging world regions (Latin America and the Caribbean, South Asia, Sub-Saharan Africa and Middle East and North Africa), show both positive and worrisome signals.

The price of debt incurred by emerging regions of the world has heavily depended on the sources of debt, and the resources the borrower can offer to the lender or its allies. Cost of borrowing can be assessed by yearly payment rates and debt yields.

Long-term interest payments made by Middle Eastern and North African countries have been increasing year-by-year from 2012. Public and publicly guaranteed interest payment decreased in 2015, but saw a sharp increase in 2017.

Latin America and the Caribbean countries (3.8 – 5.8 per cent from multilateral development banks) follow the lead with significantly smaller borrowing costs. For all but two Latin American countries, borrowing from multilateral development banks is a cheaper alternative to the release of sovereign bonds.

The amount of the debt carried by Latin America and the Caribbean, South Asia, Sub-Saharan Africa and MENA has been growing since 2012. A slight ($13B) decrease in 2016 for South Asia, is the only decrease in the amount of debt taken on by these emerging regions since 2008.

The increases in the amount of debt carried by these four regions, along with high borrowing costs, point to the conclusion that external debt stocks should be very well thought out steps. Mostly, because of their large downside.

The amount of debt taken on by these four emerging regions has created an interesting relationship between them and some financial indicators. The relative strength index (RSI) for the Emerging Markets Bonds Index is particularly interesting. By charting the iShares JP Morgan fund for EMBI from 2012 to 2019, it is possible to see that its RSI frequently trends to values close to 70. With the amount of indebtedness growing in the emerging regions, these RSI values can mean that the perception of the debt’s value is decreasing.

Fundamental analysis of the emerging regions taking on debt in the Americas, Africa and Asia, shows a complex picture of debt and its management.

The increasing debt, when not used to re-finance older and unpaid debt (like 73% of new debt in 2018), fundamentally looks to be a precursor to higher development.

By using debt, MENA and Latin America and the Caribbean regions, have built energy infrastructure and invested into industry, trade and services – all necessary for higher development.

Receiving development assistance, and using it successfully, also comes with its costs. Latin America and the Caribbean and MENA, are regions that could eventually see a re-classification of their financial state into a more developed one. And with a re-classification to one of higher development, less developed regions will become competitors for cheaper assistance from multilateral development banks.

The success of debt taken on by emerging regions, can be measured by the growth in GNI, decreases in unemployment, and increases in wealth. Increases in unemployment are a particularly worrying trend for countries in emerging regions – as forecasted by the IMF. It could mean that the rising indebtedness has not translated into spending related to a better life quality.

The most basic indicators of a country’s financial state and their ties to external debt should also not be forgotten. Not improving debt to GDP ratios; and the still present divergence of debt growth in different industries, in contrast to mature markets, are basic factors that have shown mixed performance since 2012. Along with growing debt, this means that the trend of growing indebtedness could turn for the worse.

The effects of increasing debt in Latin America and the Caribbean, South Asia, Sub-Saharan Africa and MENA will be positive for all regions using accountable spending and fiscal responsibility.

The percentage increase of external debt stocks of South Asia (25.3% from 2012-2017) and Latin America and the Caribbean (20.1% during the same period) is the smallest out of all these four emerging regions. Yet, potentially, this increasing debt for the Asian and American regions, carries the most risk.

South Asia’s environmental problems have the power to decrease the development potential of this region. Having both too much, and not enough aquatic resources, remains a problem for some South Asian countries. Moreover, the still unpredictable impacts from recycling operations in South Asian countries like Sri Lanka, will very likely increase healthcare costs and spending in a country with an already high debt to GDP ratio.

Growing debt should not present a problem if the debt to GDP ratio remains stable. That is, if the economy will follow the same growth trend. In Latin America and the Caribbean, the effect of growing debt could turn negative, if the negative and uncertain growth prognoses will come true.

A growing external loan portfolio along with the underdeveloped finances sector could start to become a political issue in countries of MENA. Simon Neaime of American University of Beirut argues that “[…] MENA policy-makers will need to introduce macroeconomic policy measures […]” and “[…] financial policies aimed at increasing MENA countries’ savings […]”. All that to decrease the impact of the growing debt and its negative effects.

Increasing external debt can also affect the debt released by the borrowing government. Sub-Saharan Africa is the emerging region which saw the highest percentage increase in external debt stocks from 2012 to 2017. This increase has been recorded at 34%. The increase by over a third, if higher debt to GDP will continue to be a positive influence on debt yields, could lead to even higher indebtedness or difficulties in repaying debt.

Countries in different continents of emerging regions have used external debt for vastly different projects.

In emerging regions of Asia and Africa (MENA, South Asia, Sub-Saharan Africa), debt is mostly used to finance energy and extraction and public administration (World Bank 2019 Annual Report) projects.

In MENA and Sub-Saharan Africa, borrowing from external borrowers is done mostly for the financing of the energy and extraction sectors.

South Asian countries, in a similar manner, have received over a tenth of development loans for their energy sector in 2019.

Contrarily, in an emerging region of Americas (Latin America and the Caribbean), external debt is a more complex tool. In contrast to spending on energy and extraction, development loans are used to finance social protection and industry, trade and services (World Bank 2019 Annual Report).

The country which has taken on the highest proportional share of external debt to GDP in this region is Jamaica. Jamaica has used the debt to combat the negative effects of a financial crisis. Although non-infrastructure spending is harder to assess, but the second-highest interest payment to GDP figure in the region (6.9% of GDP), looks to have been a necessary step to take.

The lowest share of external debt taken on by a country in Latin America and the Caribbean belongs to Paraguay. Most recently, Paraguay’s 15% debt to GDP ratio has been taken on to finance its budget.

Without any financing, even in the form of external debt stocks, world’s emerging regions would have had a much harder and longer path to development. Loans for development or financing of necessary operations, can uplift emerging regions if used properly and with accountability. Latin American countries are the best examples of debt used for development without going into too much indebtedness. However, in regions where corruption perception is higher, and governmental accountability may be lower, the once good solution to both financial and developmental problems can easily submerge the already struggling countries.

L'articolo Will External Debt Uplift or Submerge Emerging Regions? proviene da InsideOver.

A cursory look at the history of Pakistan shows that its Army wields an enormous amount of power. From foreign policy to security strategy, Pakistan’s Army almost always gets its way, at times even superseding the democratically-elected governments.

So, last week when the country’s top 25 business tycoons met with the Army Chief General Qamar Jawed Bajwa at the garrison city of Rawalpindi, it only reaffirmed the grip this all-encompassing institution holds on the country.

In an interactive session, the army chief was flanked by the country’s finance, revenue ministers and the chairman of the country’s tax collection authority. According to news reports from those who were part of this exclusive tete-a-tete, the army chief asked businessmen to share their views on how to improve the economy and urged them to invest more.

The businessmen, however, were primarily interested in resolving their issues with the Khan-led government, who in the process of macro stabilization, has brought the economy to a standstill.

Ever since Imran Khan assumed office, he has undertaken a not so politically savvy macroeconomic adjustment which on the ground has meant no fuel price subsidies, increasing utility – gas and electricity – prices, lay-offs, pay cuts etc. The situation is further complicated by the conditions attached to the International Monetary Fund-led $6 billion bailout which has forced the government to slash spending and increase revenues.

Speaking to the country’s news agencies, businessmen said the discussions with the army chief were held in a cordial environment and that they were given assurances that their grievances will be resolved at the earliest. They said they had been meeting with the country’s civilian leadership but their requests had fallen on deaf ears and they were left with no choice but to meet the army chief.

On the other hand, the army’s official media statement said that the army chief views “National security … intimately linked to economy while prosperity [a] function of balance in security needs and economic growth.” But as some welcome the country’s most-respected institution’s increased interest in the economic affairs, others fear for the future of democratic governments.

However, businessmen’s complaints are not ill-founded, the Khan-led government has introduced a plethora of policies to bring about the much-needed structural reforms to set the economy on a road to recovery. But high interest rates, ambitious tax targets, slashes in development spending have shrunk economic output.

Although, most of the economic problems faced by his team were as a result of last government’s failures, the pace of adjustment has raised fears of political uncertainty as opposition parties have begun to circle around the federal capital. Recently, one of Khan’s leading critic, Mullah Fazlur Rahman – leader of the hardcore party Jamiat Ulema-e-Islam – has announced a sit-in at Islamabad and has vowed to overthrow Khan’s government.

Although, there are doubts over Rahman’s political ability and support base to bring down Khan’s government, analysts fear his movement could gain momentum and things could take the turn for worse if other opposition parties join in.

But the statements after the meeting suggest that Khan’s government is going nowhere. It seems as if Pakistan is at a unique point in its history, where the political and military leadership seem to be on the same page. Khan has also repeatedly and openly spoken of his party’s relationship with the army and even gave army chief Bajwa a three-year extension in August.

But as Khan cedes more and more space to the military establishment in running the country’s affairs, his authority as a democratically elected leader of the country will only diminish.

L'articolo Pakistan’s Businessmen Seek Help from Military proviene da InsideOver.

In a shocking turn of events in the Balochistan saga, The Human Rights Commission of Pakistan (HRCP) has finally confirmed the human rights abuses in the region – something that Pakistan has refuted up until now.

In the recent fact-finding report, Balochistan: Still Neglected, the HRCP admitted that the province has been politically short-changed since 1947. It addressed the enforced disappearances of thousands of locals and stated that it was still the biggest issue in Balochistan. The report acknowledged that incidents of disappearance continue unabated and, in most cases, victims’ families are afraid of communicating their cases to the authorities.

Enforced Disappearances

It said, “There are also grave allegations of human rights violations by the state’s security agencies present in Balochistan. One of the most serious accusations against the agencies concerns their alleged role in enforced disappearances and the dumping of mutilated bodies of persons who have been ‘disappeared’.

“Over the years, the provincial governments and federal agencies have failed to hold any state functionaries accountable for their role in enforced disappearances and other such gross human rights violations in the province. Following the 18th Constitutional Amendment, there was some hope that the provincial government would have more say in running its affairs. Yet, the general perception remains that the state’s security agencies continue to be the decision-makers in Balochistan.”

Enforced disappearances and people who, to date, remain missing, has been one of the main human rights violations in Balochistan. Whilst some of the missing persons have been returned – including youth activists – a worrying number of people are still unaccounted for. Nevertheless, continued enforced disappearances remain widespread and rampant, and frequently, police are unwilling to lodge a first information report (FIR) in such cases.

Disturbingly, many women from some areas like Dera Bugti and Awaran have simply “disappeared” with no traces. Yet, such accounts are rarely recorded or even reported. Mama Oadeer, an activist, told HRCP that around 47,000 Baloch and around 35,000 Pashtuns are ‘missing’, and many family members explained how their loved ones have been abducted and not heard from since. Yet, these figures might not reflect the true reality of the grim situation. And in some instances, people have been missing for up to 18 years.

Pakistani authorities have been accused of not only killing but also disposing the bodies of alleged militants and for years, the bodies of missing Baloch activists have turned up all over the region.

Despite brief periods of relative calm, the HRCP conceded that law and order has remained unsatisfactory over the years in the region and the overall security situation remains tense.

Protests

In response to the epidemic of the missing, Baloch women united to protest against the enforced disappearances last week. Led by Mama Qadir Baloch of the Voice for Baloch Missing Persons, they also highlighted the case of Rashid Hussain, a political activist and student from Balochistan, who was arrested by UAE’s secret police in November 2018. He was handed over to the Pakistan authorities in June 2019, and no word of his whereabouts has since been disclosed. His family has said that Pakistani officials have claimed that Rashid moved on to India. Despite this, he has not received access to legal aid or appeared in a court of law.

Root of the conflict

Immensely rich in mineral resources, Balochistan is Pakistan’s biggest province by and accounts for around 43% of its total landmass. It is also its least populous area, as well as its poorest one. The locals have not benefited from the wealth of the land’s resources. According to a 2017 study, around 90 per cent of people have no access to clean drinking water and earn well below the national average.

Following Pakistan’s independence in 1947 from British rule, Balochistan has been manhandled and at the centre of various conflicts over the years. The most recent insurgency began in the early 2000s with a small group of militants and escalated after military forces killed Nawab Akbar Bugti, a tribal leader.

Since then, religious extremism and violence has grown, with rebels singling out non-Muslim and minority Muslim sects. Meanwhile, some nationalists have going from wanting political autonomy to demanding complete independence. Despite this, the majority simply want better policies to be implemented by the Pakistani government.

One Baloch activist, Kehkashan Haider, told Republic TV a few days ago, “Since the time we went to Pakistan and till date, from past 72 years, we haven’t got a government job, we haven’t got a federal job, we don’t have a government job or a federal job or in army or police, we don’t have a job anywhere. Pakistani authorities have demolished our offices and we are not allowed to vote. We don’t have political freedom and the door of opportunities has been shut on our face”.

L'articolo Pakistan Confirms Human Rights Abuses in Balochistan proviene da InsideOver.

The US, in an effort to end the 19-year-old war, began negotiations with the Doha-based Taliban Political Committee in 2018. The talks were led by US President Trump’s Advisor on the Afghan peace process with Zalmay Khalilzad on one side and former CIA prisoner Mullah Baradar on the other.

A peace agreement between the two sides had seemed imminent until Trump abruptly called off talks on Sept 7 citing the death of a US soldier in Afghanistan. He said the efforts to negotiate a peace settlement with the Taliban were “dead”.

However, absent from the “Afghan Peace Process,” Pakistan offered to play the role of a mediator to find a peaceful solution to a region mired in conflict for the last 30 years.

Pakistan’s Prime Minister Imran Khan, while meeting Trump on the sidelines of the UNGA meeting, said the “Afghan Peace Process” should continue in order to end the 19-year-old US war in Afghanistan. Khan said that Pakistan will play its role in bringing both sides back to the table. The recent developments in the last week seemed to suggest that Pakistan might have been successful in urging both sides to resume talks albeit unofficially.

Upon arrival of Khalilzad in Islamabad for a week-long visit, Pakistan’s Foreign Office on Oct 2 invited the Taliban’s political committee to the country. Pakistan’s Foreign Office said the “visit would provide the opportunity to review the progress made under US-Taliban peace talks so far, and discuss the possibilities of resuming the paused political settlement process in Afghanistan.”

On Oct 3, Taliban’s 12-member delegation led by Mullah Baradar arrived in Islamabad to meet Pakistan’s Foreign Minister Shah Mehmood Qureshi.

Despite the opportune presence of both Khalilzad and Baradar in Pakistan, official statements from both US and Taliban did not hint at resumption of talks.

The US Embassy said that Khalilzad was in Islamabad to meet with Pakistan officials and follow up on talks between Trump and Khan. The embassy in a press release said that his visit did “not represent a re-start of the Afghan Peace Process.”

On the other hand, the TPC also shied away from commenting upon Khalilzad’s presence in the country. The committee’s spokesperson, in an official statement, said that the delegation’s agenda with Pakistan included “issues of restoration of peace and security in the region.”

Taliban delegation met with Pakistan’s Foreign Minister Shah Mehmood Qureshi who said that “the direct Taliban-US talks since last year, strongly and sincerely supported by Pakistan, had now laid a firm ground for achieving a sustainable peace deal in Afghanistan.”

“Both sides agreed on the need for earliest resumption of the peace process” while emphasizing “the need for reduction of violence by all parties to the conflict … to provide an enabling environment for resumption of the peace process at an early date,” he stressed while commenting on the future of talks.

But as US and Taliban tiptoe for an unofficial meeting, Pakistan can play a pivotal role in ensuring a peaceful solution for the conflicted region.

L'articolo Pakistan Moves to Rekindle Afghan Peace Process proviene da InsideOver.