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A temporary relief

Dec 13 - 19, 1999

Although the rescheduling agreements accorded with foreign creditors under the title of Paris Club and London Club have given a sigh of relief to Pakistan, yet it is a temporary phase as the agreement will expire in 2001.

Since the foreign debt which according to an estimate has reached to the level of $32 billion is too big to serve from its own resources for the economy, Pakistan needs to seek a second loan rescheduling arrangement with its donors as there is no way to cope with foreign currency needs after 2001, observed by leading economist at a seminar organized by a local newspaper last week.

The rescheduling of the loans for second time however may add to the problems as once countries go for second time rescheduling, IMF sets harsh conditions to choke growth. Let us see how the new government in Pakistan cope with the situation.

Pakistan will be signing its loan rescheduling agreement with the London Club of Commercial creditors on Dec 12. The London Club had rescheduled $512 million commercial loan of Pakistan and representative of eight banks are reaching Pakistan on Sunday to sign the agreement.

This was stated by the finance minister Shaukat Aziz, while delivering the key note address at the seminar. Pakistan would be back in the international market after the first half of next year.

The government is meeting its debt liabilities and more funds will be raised on short term and long term basis by the mid of next year to meet the financial commitments, Aziz said.

The government was already working on a plan to reduce the multiplicity of taxes and reduce the direct contact between the taxpayers and the tax collectors.

Regarding government campaign for recovery of defaulted loan, he said that the total stuck up amount was Rs211 billion out of which around 10 per cent has been recovered in cash.

Shaukat described it as the smartest recovery in the entire region which has risen hopes that the economy would be put on the right track soon. The government is trying to develop a culture so that people will realize that borrowed money has to be returned voluntarily. Despite all odds and evens, errors, challenges or disappointments, the new team is determined to succeed. Shaukat said with confidence " we will succeed, as failure is not an option".

Speaking on the occasion, Dr. Hafeez Pasha, former federal advisor on finance said that situation demands that government should adopt a survival strategy instead of going for revival strategy to save the economy from total collapse.

It was imperative that corrective measures were taken on permanent footings to face the challenge instead of keeping on postponding the crisis. He was of the view that the prices of different commodities were held down artificially just to paint a better picture and maintained that the prices should be adjusted on realistic grounds.

The current account deficit is a big problem during 1999-2000 whereas trade deficit could rise from about $1.8 billion in 1998-1999 to $2.2 billion in 1999-2000.

The economic plan to be announced on Dec.15 will give a guideline to arrest the declining trend in the economy and evolve ways for the growth and revival of the economy.

Entering the new millennium on a new economic path was the title of the seminar.

Setting aside the fears that a mini budget may be announced on Dec.15, the finance minister Shaukat Aziz said that it will be an effort to take the masses into confidence on different measures which will be taken for their well-being. The economy is in a debt trap with a life of a year or so, with our credibility with international and domestic investors standing at zero.

To counter all this the government has decided to come up with a plan to first boost the confidence of domestic investors who are the engine of growth for country's economy.

Foreign investors are important but it is the local investors who drive the economy up of any country. Shaukat Aziz said that negotiations with Paris Club and London Club etc. were going well and there was no immediate threat of default. He reiterated that the major target before the government is to revive and stabilize the economy for which it was working overtime.

Pakistan is passing through a transitional phase and will gradually move towards a market economy. We are changing the orientation and believe that the private sector will become an engine of growth.

The present stage was a unique opportunity to define the national economy while entering the new millennium. It is the time when we should stop doing wrong and work towards the betterment of the people.

Aziz said that credibility of the government could be gauged from the fact that 90 per cent holders of Pakistan's three exchangeable bonds had accepted the government's offer to exchange the bonds with a new one, to be launched on Dec.13. We are negotiating with the rest of the 10.l per cent bond holders.