Pakistan says debt relief will give fiscal space

Sabyasachi Mitra

HONG KONG: Pakistan is seeking to convert bilateral debt owed to Paris Club creditors to easier terms and stretch it out over a longer period to provide the economy with some breathing room, its finance minister said on Tuesday. “Basically, Pakistan seeks conversion of its bilateral debt to more concessional terms to provide us the debt relief and the fiscal space,” Shaukat Aziz said in an interview on the sidelines of the World Economic Forum’s East Asia Summit.

Mr Aziz said he expected talks with the Paris Club states to begin in mid-December after the International Monetary Fund gives the nod to a new, three-year aid programme for Pakistan. “We expect the Fund programme to go the Board in early December. We hope to commence negotiations with the Paris Club in middle of December,” he said.

Pakistan is burdened by some $36 billion of debt, of which $15.5 billion is with the World Bank and the IMF and other institutional investors and $12.5 billion with Paris Club lenders. The United States on Monday said it will back a fresh $2.0 billion loan to Pakistan from the IMF and also support generous terms for Paris Club debt restructuring.

Cash-strapped Pakistan, a key ally in United States’ war against the Taliban regime in Afghanistan, said its friends and donors have already committed some $800 million in fiscal support. Islamabad estimates that help for Afghan refugees, crossing over to Pakistan, will cost the country $500 million this year. But Mr Aziz said most of that cost will be met through funds provided by the United Nations.
The finance minister said the new IMF loan will allow Pakistan to seek at least three years of debt relief from Paris Club lenders. “The IMF management has to agree to a package and this will be a three-year package. That will then allow us to go to the Paris Club and seek relief for three years on our debt,” he said. Mr Aziz, a former Citibank executive, said Pakistan wanted to be a responsible borrower and was sensitive to the concerns of its lenders.

Promises to be kept
He said Pakistan will stick to its economic reforms programme, which were not impacted after the September 11 attacks on the US, and keep its word on returning to civilian rule by next October. “Our priority now is to continue with structural reform programme on the economic side. That has produced good results,” he added.

Pakistan also hopes to improve the level of governance by restructuring its civil service, judiciary and police to create an environment for private entrepreneurs to flourish. “Within that we seek help from our friends in terms of assistance, aid and technical assistance as there is need for capacity building also,” Mr Aziz said. The lifting of economic sanctions, slapped on Pakistan and its arch-rival India after they both conducted successful nuclear tests in 1998, will encourage donors to actively engage with Islamabad.

Mr Aziz said Pakistan will hold elections next October to mark the return to civilian rule next year and there will be a new government by November 2002. “On the return to democracy we are totally committed and President (Pervez) Musharraf has made it clear to everybody that he intends to hold elections in October. So that by November we have an elected government and there’s no going back on that pledge.”

— Reuters