Printer Friendly

External Debts: A Comparative Study of Pakistan in Democratic and Military Regimes.

Byline: Nawaz Ahmad

This paper examines the comparative analysis of the average level of external debts between Democratic and Military Regimes in Pakistan for the time period of 41 years spread over1972 to 2012. This tenure had a combination of military and democratic regimes. Independent sample t-test is used to compare both the regimes which results in higher and statistically significant average eJournal of Business Strategies, Vol.7, No.1, 2013, pp 69-75

External Debts: A Comparative Study of Pakistan in Democratic and Military Regimes

xternal debts for democratic regime. Average growth in the external debts for the time period is observed as 6.2% p.a. Democratic regime has been contributing more in the growth of external debts.

Keywords: External Debts, Democratic Government, Military Government, Comparative Analysis.

Introduction

The External Debt is one of the most basic tools to judge a country's economic performance. The high stock of debt, slow growth rate of economy and outflow of considerable amount of resources in the form of debt serving have raised questions that whether foreign borrowing on current terms is beneficial for developing economies or not. The highly indebted poor countries (HIPCs) are experiencing shortage of new funds in their struggle to enhance growth of their economies. Even their coordination with International Monetary Fund (IMF) and World Bank has not been found fruitful and debt stock of such countries remains high.

For a long time, Economists have debated on which of the types of political regime, that is the democratic and the military government have favored Economic growth and development. In the economies of the South Asian nations, the democratic and non democratic rules always play an impact on the economic and monetary performances. The predominant view is that democracy has a negative effect on external debts because between 1970 and 1980 Pakistan's external debt grew at an average rate of 11.3 percent. Although during the Eighties it has grown at a much slower rate, i.e. 2.37 percent, but by 1986-87 the level of total external debt had reached more than 12 billion U.S. dollars. A notable feature of this change has been that since the mid-Seventies the debt-service payments have increased at a much faster rate compared with the outstanding debt.

Historians are witness to the fact that there are not many nations in the world who have managed to uphold the same political regime since the Second World War. In addition to this, a large number of nations have changed their political regimes more than once until today. The diverse levels of economic development among countries can be made by the progress of the political administrations within the countries. The basic structure of their economic policies and expansion objectives is formulated in accordance to the nature of political regime, which would then produce diverse development performances among countries. Development, efficiency and distribution of development outputs would also depend on the type of political regime. Thus, ceteris paribus, there seems to be a close relationship between economic development and the type of political regime. Needless to say, political regime is not the only decisive factor in economic development.

Various factors such as industrialization strategy, economic policy, trade, technology, foreign investment as well as physical conditions are involved in economic development (Ota, 2003).

According to statistics compiled by the international institutions Pakistan is still rating in class of low income countries with instable political environment. Slightest financial growth, Low per capita income, least social sector development, existence of ethnic classes, low rating of institutional freedoms, poor governance, more than 50 % period Pakistan ruled by the authoritarian groups, restriction on political rights and civil liberties are some striking features of Pakistan's economy (Mahmood, Azid, and Siddiqui, Democracy and Economic Growth in Pakistan, 2010). Thus, the objective of the report even becomes more crucial, that is to understand that which political era led to a more developed Pakistan. The report effectively evaluates the economic development of Pakistan in both the democratic and military rules and compares the financial progress in both the political regimes.

Problem Statement

To study which of the regimes is more responsible to the external debts of Pakistan.

Hypothesis

Ho: The average External Debt of Pakistan in Military regime is equal to the average External Debts of Pakistan in Democratic regime

Literature Review

Pakistan has, incidentally, been in a whirlpool of foreign debt since its emergence in 1947. It should have resolved its economic problems by now because of long distance it covered during more than sixty three years but unfortunately the situation has been aggravating with each day passed. In Pakistan, the economy was a role model for the developing nations during the 60s decade but due to political instability and also loss of public confidence the subsequent years could not witness the remarkable reduction in the quantum of foreign loans. There was one of the solid reasons that heavy interest rate added to the difficulties in repaying the loans. No. of lenders increased due to increased demand for further loans which has naturally been putting further strain on the growing economy.

In-ability to increase export to the level of bringing equilibrium in the export and import or at least bringing down the import to the minimum causing severe trade as well as balance of payment problems and consequently placed the economy at the mercy of the lending agencies and donors. The second major reason is the minimum ratio of net transfer to Pakistan. Besides, tied loans constraints, very nominal amount used to be left for utilizing in the process of economic development.

The empirical investigation of performance of the country and external debts during different Governmental regimes concludes that the overall Performance, external debts and Structure of Economy of Pakistan is better in the Non- Democratic Government as most of the driving players of economy shows better performance in Non-Democratic regimes than the Democratic rule. Though in contrast, various studies analyzed and concluded that there is a positive correlation between Growth and political competitiveness i.e. democracy. Similar to the finding of this paper there are also several studies which have confirmed and analyzed that the democratic authorities are poorer than non- democratic ones at carrying out reform (Williamson and Haggard, 1994). Similar to this many other Researchers believe that the economical growth lies somewhere around the military dictatorship in the under developed nations (Schmitter, 2005).

Several researchers also found that there is a negative or no relationship between Economic Growth/ performance and Democracy, Moreover, Democracy with distinction itself fails towards explaining economic prosperity and endures its political fallout. (Sirowy and Inkeles, 1990).

In democratic or a non democratic rule, whether the non democratic regimes pave the way for growth in economy or democracy has the positive relations with the economical growth, the relationship was only prominent in long-term. The long-term economic performance of countries relies upon the establishment and good governance, no matters if the good governance is an exercise of democratic authority or a non democratic rule. Only good governance may enable an economy to produce strong markets, private scheme, and a competitive business environment, and they are all inside a framework of rule of law. (Subhani, Lakhiya, and Osman)

Democracy as a system of national politics gained spacious acceptance in the past half century, because democratic system of administration benefit countries in numerous ways. It promote the rule of law, open society, freedom of choice, and stable politics, which discouraging corruption and extremist policies. Democracy also allows for political participation through regular free elections that should not exclude defined social groups, and it offers a certain level of civil and political rights that ensures competition and participations, which in turn enhance the economic and social health of territory. However, frequent changes in governments brought about through non democratic methods often lead to immature and uncertain economic policies, is the denial of political freedom and civil liberties. Such type environment seriously limits the economic prosperity. But the question of relationships between political democracy and external debts and economic growth is more rigorous and focused today than past.

It is experiential from growth literature that nations which have democratic regime be inclined higher level of economic growth. Due to significance of democracy for economic prosperity, up till now too much research work have been done on this hot issue, even though study regarding the nature of relationships between targeted variables in Pakistan still has research thrust. According to statistics compiled by the international institutions Pakistan is still rating in class of low income countries with instable political environment. (Mahmood, Azid, and Siddiqui, Democracy and Economic Growth in Pakistan, 2010)

Method

Variable

This study follows a univariate variable External Debts of Pakistan which is bifurcated into two different regimes i.e. Military and Democratic. We have taken the data of last 42 years starting from 1972 till 2012 and collected from the official Publication of World Bank (WB).

Statistical Technique

In this research we study the comparison of External Debts in two different regimes, Democratic and Military. In order to find which rule has been over-all providing less average annual External Debts in their rule we used the Independent-Sample T-Test. Through this test we are able to make our decision. For data analysis purpose Statistical Package for Social Sciences (SPSS) is used.

Results and Discussion

Graphical Representation

The graph depicts a positive trend in external debts with reference to time which is more evident in the time period of 2007 till 2012. In order to check growth in external debts, we applied growth model.

Model Summary and Parameter Estimates Dependent Variable: Ext_Debts

Dependent Variable: Ext_Debts

###Model Summary###Parameter Estimates

Equation

###R Square###F###df1###df2###Sig.###Constant###b1

Growth###.960###950.893###1###40###.000###22.302###.063

The growth model is applied considering external debts as time dependent whereby its explanatory power is 96% which is highly significant as F statistics is quite higher than 4. Furthermore, average growth across the total tenure is 6.3% which is significant at 1%.

Group Statistics

###Group Statistics

###Regime###N###Mean###Std. Deviation###Std. Error Mean

External###Democracy###18###3.09E10###1.789E10###4.216E9

Debt###Military###23###2.02E10###1.311E10###2.733E9

The total time period is bifurcated into democratic and military regimes. It is evident that average debts in democratic regime are substantially higher than military regime. Moreover, military regime has lower standard deviation despite the fact that its sample size is higher.

Independent Samples Test

###Independent Samples Test

###Levene's###t-test for Equality of Means

###Test for###95% Confidence

###Equality of###Interval of the

###Variances###Difference

###Std. Error

###F###Sig.###T###df###Sig. (2- Mean###Lower###Upper

###tailed) Difference Difference

###Equal variances

###assumed###.635 .430###2.222###39###.032###1.075E10###4.838E9###9.628E8###2.054E10

External

Debt###Equal variances

###2.139###30.168###.041###1.075E10###5.024E9###4.902E8###2.101E10

###not assumed

Independent sample t-test is applied in order to assess which of the regimes has higher average external debts for its respective tenure. Levene's test is applied for equality of variance - a pre requisite to t-test. As equal variance assumed hypothesis is failed to reject because sig value is not less than 0.05, we will follow its corresponding t-test values which suggests that the mean difference of external debts between the two regimes is significant as t-state is greater than 2 followed by corresponding sig value (0.032) which is less than 0.05.

Conclusion

Conclusion and Future Research

When government is efficient and effective, it relies on domestic resources and it delivers. External debt is a barometric variable to judge government's efficiency. This research paper aims to compare average external debts between military and democratic regimes across last 41 years ending in 2012 which has a different combination of military and democratic regimes. External debts of Pakistan have got a significant average growth of 6.3% per annum. Further, military regime has a statistically significant average external debts compared with democratic regime. It is concluded that military regime proved better for economy.

Future Research

Researchers can follow up with the same topic but considering other countries. They can opt for comparison between two countries considering the factor of political regime or else can also consider the factors of use of technology, foreign investment, trade, etc.

References

Abdullah A. F. (1985), Development of an Advance Warning Indicator of External Debt Servicing Vulnerability, Journal of International Business Studies, 16 (3), 135-141.

Aliber, Robert Z. (1980), A Conceptual Approach to the Analysis of External Debt of the Developing Countries, Washington, D.C.: World Bank. (Working Paper No. 421)

Askari, J. (2001-2010), Economic Survey of Pakistan.

Avramovic,Dragoslav,et al. (1964). Economic Growth and Ex ternalDebt. Baltimore: The Johns Hopkins University Press.

Gerring, J., Bond, P., Barndt, W. T., and Moreno, A. C., (2005), Democracy and Economical Growth: A historical Perspective.

Jafri, S.K. (2008) 'External Debt Sustainability Analysis for Pakistan: Outlook for Medium Term', SBP Working Paper Series, 27, pp. 1-18.

Mahmood, K., Azid, T., and Siddiqui, a. M. (2010). Democracy and Economic Growth in Pakistan, Research Journal of International Studies - Issue 15

Sirowy, L. and Inkeles, A. (1990), The Effect of Democracy on Economic Growth and Inequality: A Review, Studies in Comparative International Development, 25(1), 126-157

Subhani, M. I., Lakhiya, Z., and Osman, A. (n.d.). The Structure and Performance of Economy of Pakistan (Comparative Study between Democratic and Non-Democratic Governments). International Journal of Business and Social Science, 2 (14)

The Pakistan Development Review, Vol. XXVII, No.4 Part II (Winter 1988)
COPYRIGHT 2013 Asianet-Pakistan
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2013 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Journal of Business Strategies (Karachi)
Geographic Code:9PAKI
Date:Jun 30, 2013
Words:2257
Previous Article:Factors for Better Selection of Business Universities in Karachi: Perspective of Students.
Next Article:Failure of IMF Programmes: Causes and Consequences.

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters