KARACHI (February 01 2003) : Pakistan's debt servicing would be reduced to 25 percent from the current 40 percent of the budget in the next two years that would enable the country to allocate Rs 180 billion for development expenditures, said Dr Ishrat Husain, Governor, State Bank of Pakistan on Friday.
He was addressing a seminar on 'Pakistan – Economic Horizons 2003 and Beyond', organised by a local daily.
While emphasising that the country could do nothing unless it came out from the debt trap, the Governor supported the debt reducing strategy being adopted by the country for the last three years.
“We hope that debt servicing would come down to 25 percent in the year 2004-05, from the present 40 percent of the budget,” said Dr Husain, adding that it would enable the country to allocate Rs 180 billion for development.
He said: “We will pay back our costly loans of IMF, World Bank and others. We got the loans from donor agencies at 2.5 to 3 percent, while currently the return is only 1.5 percent.”
He said that the country would get $1 billion from IDA (International Development Agency) at zero percent rate and it would be payable in 35 years, with 10 years' grace period. “This kind of loan we are getting,” said the Governor.
He said it was necessary to come out from the debt trap as it was affecting the general public. This development expenditure would accelerate the economic activities in all sectors of the economy, he added.
He said the country has reached a level where “we don't need to beg the donor agencies to come and help us”.
The country has been making every payment and did not delay any payment for a single day in the crucial periods, which gave the country credibility, he said.
Talking about poverty, the Governor said that the country in its 40 years had reduced poverty from 40 percent to 18 percent by 1988-89, and it happened “because we kept going with a growth rate of 6 percent”.
“There is a lesson for us that we should go back to that growth rate of 6 percent of GDP,” said the Governor, hoping that the country would achieve 6 percent growth rate in 2005-06.
“Why I said that 6 percent growth could be achieved, because we have done our homework,” the Governor said.
Explaining why the government could not achieve 6 percent growth rate in three years, Dr Husain said that the 'patient' (economy) was in the worst condition and needed a lot for its recovery.
“At that time, our 60 percent foreign exchange earnings were being used for debt servicing and the country was facing nuclear sanctions and democracy sanctions as there was military rule in the country.”
He said: “We suffered four major shocks during this period. The country had to face three years of drought; September 11 incident; long border tension with India; and violence events like bombing on French people, attack on churches and other violence incidents.”
He said the situation has improved in the water side “and we are expecting 4 to 4.5 percent growth” in the agriculture sector.
He said there was global recession for the last 2-3 years “which is over now”.
That would also help in achieving a growth rate of 6 percent. He said that the public sector investment would increase from 4.7 percent to 6.2 percent in the coming years.
However, he mentioned that the public sector losses were causing 7 percent fiscal deficit.
Dr Husain said that the public sector losses were causing 7-8 percent negative saving which brought down the saving at 14 percent.
He said in last two years the revenue collection has already increased by 50 percent in the next three years it would be around Rs 560 billion.
At this point he lauded the efforts of textile sector and said they invested their own money for BMR and now the value-added sector is 65 percent of exports and the yarn and grey cloth have come down to 35 percent.
Earlier, the situation was reverse.
He said the banking reforms have produced good results and interest rates have come down.
Now the banks would have to target SMEs, housing, agriculture and other ignored sectors. They will have to work hard and come out with a lot of products for the consumers.
The Governor praised the Local government system and said it was working well even in rural areas.
While discussing electricity charges, he said that it was affecting the consumers and increasing the cost of production and said that “we should do something to reduce its prices”.
He said there is opportunity for Wapda and KESC to offload their costly loans with available cheaper credits.
He said in the coming years percentage of hydel electricity would increase and that would help to reduce the electricity charges.
The Governor opined that stock market was not the reflection of the economy. He said remittances which are coming into the country found the stocks a better place to get higher return.
Earlier, Shaukat Tareen of Union Bank, presented a detail discussion on the performance of the banking sector while Zaigham Rizvi presented his working, touching all corners of the economy specially stocks.
Both speakers answered a series of questions from the participants.
International Financial Consultant Iqbal Latif also spoke on the occasion and praised the performance of the economic managers of the country and said he was selling the success story of Pakistan the world over.