.

1- PSF INDUSTRY FACING FIERCE COMPETITION
2-
WHY BANKS HAVE LESS ENTHUSIASM FOR MINING FINANCE?
3-
KSE: NEW HEIGHTS
4- FOREIGN DEBT

.

FOREIGN DEBT

 

Pakistan getting out of the trap


By AMANULLAH BASHAR
July 14 - 20, 2003
.

 

 

The total US assistance for Pakistan has been estimated at $6.5 billion after the events of September 11. Unlike the previous governments which used to spend borrowed money lavishly for their princely life, a large portion of that financial assistance has been used for debt retirement by the present government.

The break down of this assistance consisted of $3 billion, $600 million, $300 million and $400 million budgetary supports. Around $1 billion logistic support payments, around $500 million from OPIC and a one billion dollar write off.

The US government has recently announced $3 billion five-year package for Pakistan, out of which the government was intended to earmark $1 billion for debt retirement.

The US package includes $1.5 billion for defence purchases and the remaining for economic assistance.

Of this $3 billion grant, two third would be used for debt repayment. Pakistan was, however, given the choice either to get it in cash or use it for debt retirement.

It may be mentioned that the total US debt towards Pakistan is now about $1.8 billion, the favorable situation calls for efforts to get rid of the entire US debt and hopefully the government may succeed in achieving this target in near future.

As a result of successful rescheduling and debt retired so far during last three years, the ratio of debt servicing to foreign exchange earnings has been estimated to decline from 75 per cent in the financial year 2000-01 to 25-30 per cent range in financial year 2004-05.

The national economy was swamped in a formidable size of foreign debt amounting to $36 billion till 2001. Out of the total foreign debt of $36 billion around $15.5 billion came from the IMF and the World Bank and other institutional lenders and $12.5 billion from the Paris Club.

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.

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-JEXIM 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.

Credit for getting out of the debt trap entirely goes to the present set up of the economic managers for loosening the strings of the debt trap and providing a breathing space to the national economy. This is certainly a great achievement by virtue of this Pakistan's sinking economy has brought back on the track leading towards a sound economic future.

There was a time when the bloated foreign debt touching the level of $38 billion had become an incorrigible burden over the economy of Pakistan. Hopefully, that situation would not be allowed to repeat in future and the economy would move on the path leading poverty ridden people of this country towards peace and prosperity.