The Debt Reduction and Management Committee appointed by the
Ministry of Finance and Economic Affairs, last year, under the Chairmanship of
Dr. Purvez Hassan has finally submitted its report to the government which is
being released to the press for eliciting public opinion before finally
implementing it. The final recommendations will be adopted in the next year
The Committee has recommended both short-term and long term
measures to rid country from debts specially the foreign debts. As a short term
measure "the exit from debt strategy (2001-2004) envisages exceptional
concessional loans from multilateral agencies, building of $5 billion reserves
and further rescheduling and reduction of debts from donors.
The committee says the goals of the debt strategy are that
Pakistan should not seek any IMF assistance beyond PRGF (Poverty Reduction and
Growth Facility) in 2004, no debt relief after PRGF. Reduction in external debt
burden to be less than 200 per cent of the foreign exchange earnings by mid
2005, building up of foreign reserves of $5 billion to withstand any unexpected
economic shocks by mid 2004 and limiting of short term loans with maturity of
less than a year to less than 10 per cent of the total debts.
According to the committee report the instruments of the exit
strategy are sharp improvement in exports and curtailment in imports, vigorous
privatization to retire short-term expensive debt, further restructuring of
Paris Club debt, and seeking exceptional quick disbursing concessional loans
from the World Bank, Asian Development Bank and possibly from some donor
The debt reduction committee has warned that default which
hovers around the corner because of difficult debt position is not an option at
all, for it has a chain reaction totally adverse for the country. Its domestic
investors, what to say of foreign investors would hesitate to invest. It would
result in flight of capital, and the medium and long-term economic programme
would be severely affected.
The report says the country stands committed to honour its
external debt obligations. The government policies must help not only create
conditions for price and exchange rate stability but also provide a boost to
economic growth, through creating confidence in Pakistani currency, discouraging
capital outflows and encouraging foreign private investment. The government
policies, should lay the basis for elimination of the need for IMF assistance in
about three years and obviate the need for additional debt relief after middle
The committee suggests that as long as the daunting external
finance challenge remains, the country may seek exceptional assistance from IMF,
World Bank, ADB and other donors, additional debt relief, large private
receipts, achieve sizable non-interest current accounts surpluses to meet the
debt servicing programme and build up foreign exchange reserves to adequate
The report admitted that historically Pakistan has received
large net resources transfer from abroad. There is need to increase it to about
$1.5 billion by 2003-04 through vigorously expanding exports and slowing down
the rate of growth in imports. According to the committee, the reduction in
burden of external debt to sustainable level requires that much of new foreign
borrowing during this period be on concessional terms.
It further recognised that Pakistan indebtedness to the
multilateral institutions is high. Pakistan needs to largely eliminate its
normal terms and fresh borrowing from World Bank and ADB terms should be
confined only to non-project assistance.
The committee is of the view that since inadequacy of foreign
exchange has been a major source of Pakistan's external difficulties, it
suggests building of $5 billion reserves or at least enough amount to meet four
months imports. It stresses that this foreign exchange target should be pursued
even at cost of some less of short term momentum in growth of imports and
investment because domestic and capital flight and for private investment
decisions are significantly affected by a country's level of foreign exchange
reserves and its perceivable ability to withstand economic shocks.
The committee estimates that by end of PRGF, the country
should achieve surplus of non interest currency account surplus of $3.8 billion;
normal disbursement of medium and long term loans $6.2 billion, net foreign
investment 2.5 billion; rescheduling from Paris Club 5.1 billion, receipts from
privatization $3 billion, exceptional quick disbursing assistance from World
Bank, ADB, and possibly some donors $6 billion and trade financing $0.3 billion.
Of this the possible shortfall may be by $2.5 billion.
In the word of the committee, the first and foremost,
Pakistan will have to achieve a surplus in non interest current account of
balance of payment of nearly one billion annually during 2000-2004. This is in
sharp contrast to the average annual deficits of $1.5 billion during the 1990s.
This would require a major expansion as well as substantial import savings. Even
so, the country would need exceptional assistance of $6 billion under PRGF and
short term rescheduling of $5 billion. If the latter flow do not materialise,
Pakistan will not be able to meet its debt obligations even if succeeds to
implement a strong adjustment programme. It is also important that exceptional
assistance to Pakistan during 2001-04 be entirely on concessional terms. If it
does not happen, multilateral debt service payments would become extraordinarily
large. It is of considerable interest to Pakistan, the committee says, to reduce
the present value of debt outstanding to multilateral institutions. The
committee expects that over and above the normal lending, Pakistan should seek
$700 million from the World Bank soft window and similar treatment is expected
from the ADB which, may also be asked to provide 600 million.
Although some economic experts do not agree with the
recommendations describing it too assumtive, by and large the report is
considered sound, bold and practical with potential of yielding dividend
expeditiously for lifting the country out of its current quagmire.
The recommendations, will put the national economy back on
track as it has the set objectives and targets, implementation of the
recommendations however, requires perseverance, objectivity and commitment on
the part of the government. Our history is replete with instances wherein we had
fumbled in the process of implementation of the excellent plans and programmes,
which led to their failures, causing colossal financial loss to the state.