KARACHI, Pakistan, July 7 -- Harsh economic measures introduced by Pakistan's new prime minister, Nawaz Sharif, to pay off the country's formidable foreign debt may increase the ranks of the poor and allow extremists to exercise more influence, economic and political experts have told UPI Next.
Finance Minister Ishaq Dar released the month-old Sharif government's first budget June 12, unveiling a catalogue of measures that will sting the poor, while one-third of the budget's $35 billion (3.5 trillion rupee) outlay services the country's roughly $50 billion to $60 billion foreign debt.
Debt servicing and power industry subsidies consumed more than half of government spending during this year's first quarter, according to the State Bank of Pakistan's latest quarterly report for 2012-2013
The 2014 budget includes food, gasoline, electricity and natural gas price hikes, a proposed 30 percent cut in government spending, and a host of new taxes aimed at raising the ratio of Pakistan's taxes to its gross domestic product from 8.9 percent, the world's lowest, to 15 percent.
With a budget deficit that grows each year, Pakistan depends on external loans and grants for social development. One of Sharif's campaign promises in the May elections was to restore the country's financial sovereignty by lowering the country's foreign debt.
"Every newborn baby owes 83,000 rupees to the international lenders," former State Bank of Pakistan Deputy Governor Ali Akbar Dhakhan told UPI Next.
"There's a strong feeling the economy is poised for a nosedive if the government does not manage its debt," he said.
"The debt has caused slow economic growth, poverty and unemployment. Past governments have misappropriated easily provided foreign money and now the country is in a debt trap," Dhakhan said.
"Economic growth has been almost static for several years. There has been no foreign direct investment since the government joined the war on terror in 2001. There are reports of massive capital flight out of the country. Foreign exchange reserves have dwindled. Hundreds of factories have been closed because of power shortages. This has left thousands without work. Those without work are lured by the Taliban to join their ranks," he said.
Unemployment in Pakistan has reached 9.2 percent, according to the International Monetary Fund's 2012 World Economic Outlook.
"The prices of all food items have gone up," Mohammed Hanif, a retired steel mill worker in the country's largest city, Karachi, told UPI Next.
"It was much easier to run my home on my wage 20 to 30 years ago. Now it's too difficult because of the high cost of all household items," he said.
He said he was too busy managing his debts to the local grocer to think about the scale of his country's foreign debt and how it affects him.
He worries about how he will sustain his family. Now in his 70s, Hanif relies on wages his son earns in Qatar as a laborer – the sole earner among his four adult children. Hanif's daughter and two other sons are unemployed, as is the case for nearly one-tenth of the population.
Relentless terror attacks by militant groups have contributed to the rise in unemployment by scaring foreign investors away.
"There is no foreign investment. In fact we have witnessed divestment. Industrialists are leaving for Bangladesh and Malaysia," said Jaffar Ahmed, director of Karachi University's Pakistan Study Center.
"This has caused massive unemployment and average Pakistanis are finding it difficult to make ends meet," he added.
Adding to the country's economic woes, its currency is in virtual free-fall. At the end of June, the rupee's value fell to 100 to the U.S. dollar for the first time in Pakistan's history, marking a 66 percent depreciation in five years.
Ahmed said the country's huge debt was an indirect cause of terrorism.
"The rise in extremism and recurring acts of terrorism can be attributed to several factors. Unemployment is one of them. The weak economy is a direct cause of terrorism. Debt is an indirect cause," he said.
The government has no funds left for education, the best means of deradicalization, Ahmed said.
"The government needs a lot of resources for disengaging and deradicalizing extremist elements. But the kitty is empty. Our budgets are always in deficit," he said.
Despite vowing to increase education funding from 3 percent of GDP, there was no increase for schools in Sharif's new budget.
Sharif's party, the Pakistan Muslim League-Nawaz, "talked about increasing education's share," he said, "But the problem is that the government lacks resources. This would only be possible after improving the state of the economy."
Pakistan ranks 146th of 187 countries on the U.N. Development Program's Human Development Index, while UNICEF puts the country's literacy rate at 46 percent -- 26 percent among girls. More than 5.1 million primary school-aged Pakistani children are out of school, according to UNICEF figures for 2010, the third-highest rate of out-of-school children in the world.
The Society for the Protection of the Rights of the Child, a U.N.-accredited Pakistani organization, projects the number of out-of-school children will increase to 5.4 million by 2015.
"Incoming loans are a blessing if they are utilized for the sake of development, but a curse if they are gobbled up as free lunches," Dhakhan said.