Paris Club rescheduling to bring 40 percent cut in net present value

ISLAMABAD (December 22 2002) : With the cancellation of debt, debt swaps and interest rate reduction, the relief from Paris Club bilateral loans rescheduling would bring 40 percent reduction in net present value (NPV) of existing $ 12.5 billion debt stock.

Based on rescheduling alone, a 30 percent reduction in net present value of outstanding stock of debt was envisaged.

This amount of relief in net present value was between $ 10 and $ 11 billion and any further achievements could increase it.

The full extent of relief would be determined after Pakistan works out bilateral agreements with the creditors.

There are individual creditors who have committed to either cancel their debts or have shown their willingness of $ 1.5 billion swap for social sector spending.

The total payment to be made in terms of NPV could be $ 36 billion against $ 12.5 billion.

The loan was restructured according to the following terms: Official Development Assistance credits are to be repaid over 38 years, with 15 years grace period at interest rate at least as favourable as the concessional rates to be applying to those loans. Commercial credits were also asked to reschedule and to be repaid over 23 years, with 5 years of grace and progressive payments, at the appropriate market rate.

This rescheduling only matched with few other countries, such as Poland, Jordan, Egypt and Yugoslavia.

External debt burden to be reduced to 200 percent of foreign exchange earnings. Public debt burden to be reduced to 350 percent of government revenues by 2010.

Government is almost getting $ 6 billion of exceptional assistance from the IMF, World Bank and ADB by 2004 as demanded. This would keep non-concessional borrowing to a minimum.

Pakistan needs to pay $ 21 billion during four years, when it demanded from donors $ 6 billion exceptional financing to bail it out. The implementation of tough reforms made the flow of funds easy.

Donors remained critical in many areas but also offered substantial financial support during this period.

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