The foreign debt and its servicing which, had become
a nightmare not only for the economic managers but the entire nation,
has been brought well under control by virtue of good economic policies
and timely decisions.
Resultantly, the ratio of debt servicing to foreign
exchange earnings is expected to decline from 75 per cent in the
financial year 2000-01 to 25-30 per cent range in financial year
It is painful to recall that the national economy was
swamped by the foreign debt to such an extent that for meeting the debt
servicing liability it had to borrow fresh loans which were piling up
with the passage of time. Consequently, the economy was trapped in a
formidable foreign debt amounting to $36 billion till 2001. Out of the
total foreign debt around $15.5 billion came from the IMF and the World
Bank and other institutional lenders and $12.5 billion from the Paris
At the time of departure of the previous government
the foreign exchange reserves were even less than a billion dollar and
all time and efforts were being used to get new loans to avert default
from debt servicing. People had started thinking that only a miracle
could save the economy from a total collapse.
One may like or not, the change in the government
followed by the international events, proved to be a turning point which
changed the entire complexion of the depressed economy of this country.
Behind this remarkable achievement there were a
number of factors including professional and dedicated efforts and well
directed policies at home front helping developing friendly attitude of
lenders on external side leading towards successful rescheduling of the
foreign loans and retirement of the costly commercial loans.
Under the rescheduling, Pakistan has been able to
sign the agreement at reduced rates of interest for an extended period
of repayment as compared to original rates of interest and repayment
period. Thus estimated relief of $12 to 15 billion annually will accrue
in payment of debt servicing on its external debt during the year
2001-2002 to 2004-2005.
Under the tight financial discipline, the government
has been able to retire the entire expensive commercial loans and the
total foreign debt has been lowered from $38 billion to $36 billion
during last two and half years.
With the signing of agreement for rescheduling of
$4.5 billion in the last week of March this year, Pakistan almost
completed the rescheduling of $12.5 billion loans from the member
countries of the Paris Club.
With the signing of rescheduling agreement with
Japan, almost 92 per cent of the total loans under Paris Club have been
rescheduled. The Paris Club Agreement was signed in December 2001.
The Paris Club had agreed to reschedule debt for 35
years with a 15-year grace period. Pakistan was granted a repayment
period of 38 years with a grace period of 15 years for Official
Development Assistance (ODA) loans.
The Paris Club has also decided to defer for three
years all the amortization payments on post-cutoff date debts and
interest on restructured loans due to be paid between November 30, 2001
and June 30, 2002. In addition, 20 per cent of the interest payments due
in next two years were also deferred.
From the Paris Club creditors, Denmark and
Commonwealth Development Corporation (CDC) of the UK have waived off
their entire outstanding debt of $18.4 million and $29.5 million
respectively, while Netherlands has also given remission in debt
services payment falling during October 2001 to December 2002 equivalent
to $14.3 million and the total cancellation of debt, thus comes to $62.2
The rescheduling agreement signed so far included
Austria $33.18 million, Belgium $42.93 million, Canada $342.61 million,
Denmark $16.49 million, Finland $6.06 million, France $1,061 million,
Germany $1,146 million, Netherlands $89.56 million, Norway $49.51
million, Spain $75.63 million and Switzerland $68.38 million.
PACT WITH JAPAN
Pakistan and Japan have signed loan rescheduling pact
of $4.5 billion under the Paris Club Agreement. The loan consisted of
three categories, i.e. debts of Japan Bank for International
Co-operation (JBIC), commercial debts insured by the Government of Japan
and food aid debts. The food aid debts of $8 million are expected to be
signed sometimes next month for which terms and conditions have been
The rescheduled debts will be repaid in 38 years,
including a grace period of 15 years and in 46 equal semi-annual
installments beginning from May 31, 2017 at 1.8 per cent rate of
interest. Another loan of Ex-JEXIM amounted to 16 billion yen will be
repaid in 38 years, including a grace period of 15 years and in 46 equal
semi-annual installments beginning from May 31, 2017. The rate of
interest for this category will be applicable to six-month yen LIBOR
plus 0.5 per cent per annum.
The third category of the debt is from Ex-JXIM United
Loans worth 45 billion yen will be repaid in 23 years including a grace
period of 5 years and in 36 installments beginning from May 31, 2007.
The rate of interest will be applicable to six-month yen LIBOR plus 0.5
percent per annum.
The fourth one is the debt guaranteed by Ex-JEXIM of
6 billion yen will be repaid in 23 years, including a grace period of 5
years and in 36 installments beginning from May 31, 2007. The rate of
interest will be applicable to six-month yen LIBOR plus 0.5 per cent per
The rescheduled commercial debts worth 3 billion yen
will be repaid in 23 years, including a grace period of 5 years and in
36 semi-annual installments.
Japan's loan constitutes 36 per cent of the total
rescheduled debt of $ 12.5 billion is the largest among 18 Paris Club
creditor countries. This is the fifth rescheduling agreement between
Pakistan and Japan. The third and fourth rescheduling agreement of $822
million and $550 million were signed on April 26, 2000 and October 5,