.

1- UBL: STRONG FINANCIAL RESULTS
2- REVENUE COLLECTION FOR THE THIRD QUARTER
3-
PARIS CLUB LOANS
4- $ ONE BILLION LOAN WRITE OFF BY US
5- USING FOREX RESERVES FOR PROJECT FINANCING

.

PARIS CLUB LOANS

 

Rescheduling provides relief in debt servicing

 

By AMANULLAH BASHAR
Apr 14 - 20, 2003

 

 

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 2004-05.

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 Club.

TURNING POINT

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.

 

 

PARIS CLUB

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 million.

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 settled.

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 annum.

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, 2001 respectively.