Pakistan to get ‘permanent debt relief’
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Pakistan is likely to get “permanent debt relief” from Paris Club due to meet in December that would reduce the huge bilateral debts to sustainable levels. Sources here said that Pakistan is seeking permanent re-profiling of debt by the Paris Club to reduce its debt servicing burden, which would be on better terms than short-term debt rescheduling it has so far got under the Housten terms. Pakistan is not looking for debt write-off under Heavily Indebted Poor Countries Initiative (HIPC) although, technically, it would qualify for this facility. It would stop fresh flows from bilateral donors. However, many bilateral donors also provide debt forgiveness over and above the HIPC Initiative assistance, particularly on ODA debt. The sources here said that the debt relief will be provided on the basis of net present value (NPV) of the current debt stock of $12 billion. The bilateral donors are generally expected to reschedule obligations, with a 80-90 per cent reduction in the net present value. According to the IMF, the face value of the external debt stock is not a good measure of a country’s debt burden if a significant part of it has been obtained on concessional terms with an interest rate below the prevailing market rate. The NPV of debt is a measure that takes into account the degree of concessionality. It is defined as the sum of all future debt-service obligations (interest and principal) on existing debt, discounted at the market rate. Whenever the interest rate on a loan is lower than the market rate, the resulting NPV of debt is smaller than its face value, with the difference reflecting the grant element. The sources said that the Paris Club would provide a deeper and broader debt relief and strengthen the links between debt relief and poverty reduction and social policies. Pakistan has already submitted a 68-page interim Poverty Reduction Strategy paper to the IMF. The debt-relief will be preceded by the Poverty Reduction and Growth Facility (PRGF) arrangement between Pakistan and the IMF just weeks before the meeting of the Paris Club. The PRFG will make Pakistan eligible for debt relief. Apart from the IMF’s own commitment, the PRFG fiscal package would indicate pledges from World Bank, Asian Development Bank and traditional bilateral donors. Another PRGF component would be debt relief. The sources said that Pakistan was now working with the IFIs and the bilateral donors on a five-point agenda to obtain a range of concessions. These are: 1) Permanent re-profile of bilateral debt so as to reduce the debt servicing burden, 2) to obtain concessional loans and grants from bilateral and multilateral donors, 3) to finance the expenditure associated with Afghan campaign out of exceptional grants from coalition partners, 4) to raise the spending on education, health, poverty reduction and job creation, 5) to increase Pakistan’s access to EU and US markets by removal of tariff and quota restrictions. |