ISLAMABAD, Oct 20: Pakistan has been offered $800 million immediate “cash grant” by the United States and its allies to help improve its economy.

“We will be very soon provided this net cash grant of $800 million in addition to $600 million for Afghan refugees,” said minister for finance Shaukat Aziz.

Unfolding his economic assistance package jointly being sought from the US, European Union and International Financial Institutions (IFIs) at a news conference here on Saturday the minister said that Pakistan has been offered a substantial budgetary support as well as debt relief.

He said 1 to 2 billion dollar effect to the Pakistani economy has been estimated till June next year in the shape of reduced exports, imports, revenues and less privatization proceeds.

“Let me clarify here that this $800 million cash grant has been provided as part of the budgetary support till June 30 next year. And we were given to understand that grant assistance will continue during the next financial year with considerable debt relief,” the finance minister said.

He said that it has been decided that UN agencies will buy wheat, tents and other necessary items for Afghan refugees from Pakistan.

“But the major debt relief is expected from Paris Club as our bilateral creditors look very supportive of Pakistan.”

He said that Canada has converted its $285 million loans into social sector funding to remove poverty and undertake new health-related activities. “This is almost a writing off a loan,” he said adding that the UK’s secretary of state for international development Clare Short had already declared writing off 24 million pounds Commonwealth Development Corporation’s loan.

The minister also furnished, for the first time, latest foreign debt figures accumulated till September 30, 2001. He said the total foreign debt was to the tune of $37 billion which includes $12.5 billion bilateral and $15.4 billion debt of World Bank, IMF, Asian Development Bank and the Islamic Development Bank.

Giving the breakup, he said Pakistan owes $5 billion loan to Japan, $3 billion to USA, France $1 billion, Germany $1 billion, Canada $318 million, Italy $175 million, Korea $738 million, Sweden $127 million, Russia $103 million and the Netherlands $88 million. “The total non-Paris Club debt amounts to $500 million that has been offered to us by our friendly countries”.

Similarly, he said that short-term foreign banks debt amounts to $751 million that had been offered as part of trade financing. “Then the private sector support credit stands at $2.1 billion, and $5 billion are in the shape of dollar-deposits and Euro bonds,” he added.

The finance minister pointed out that Pakistan was seeking debt relief keeping in view the objective of creating fiscal space and reducing poverty from the country.

In reply to a question Mr Shaukat said that it was wrong to presume that Japan has refused to write off Pakistan’s $5 billion loans. Referring to president’s telephonic talks with Japanese prime minister, the finance minister said that Japan could not currently write off its loans because of an existing constitutional and legal hitch. “But I would be visiting Japan from October 29 to discuss the issue for which we hope some new legislation could be done by the Japanese,” he said.

He told a reporter that beside getting debt relief and cash grants, Pakistan was also negotiating fresh foreign loans on concessional terms. In this regard he referred to Poverty Reduction Growth Facility (PRGF) being sought from IMF about which he avoided to give the size. Also, he said that World Bank has agreed to offer $300 million banking sector loan on just 0.75 per cent service charges.

He said that despite facing sanctions till very recently Pakistan has paid back $600 million loans. In this regard, he said that the government has recently purchased $100 million from the open market.

He told a reporter that new legislation was being finalized by the finance ministry and the State Bank of Pakistan to discourage money laundering.

He said that Exim Bank of America has offered $300 million loan facility to US investors to invest in Pakistan. “Since there are no more sanctions against Pakistan, we expect substantial US investment in the country,” he said adding that US Overseas Private Insurance Corporation (OPIC) was extending all facilities to American investors to invest in Pakistan. “Now we expect a new relationship with US Exim Bank,” he said.

The finance minister said that he would be meeting the visiting US under-secretary of economic affairs Alan Larson on Sunday to further discuss with him new US funding line for Pakistan, including to have certain debt relief.

Asked about foreign private agencies, he said after the lifting of international sanctions, M/S Coface of France, M/S Sace of Italy, M/S ECDG of UK, M/S Harmes of Germany, and Japan’s Exim Bank would now start extending export credit. This credit, has said, had been suspended for about three years and had effected foreign investment in the country.

“We have successfully negotiated with the US government to have market access and increase in textile quota, and at the same time removal of undue taxes,” the finance minister stated.

He said that the US and its western allies have also assured to promote foreign direct investment in Pakistan.

He said since there were no more sanctions, private investors should come forward and get a letter of credit facility for which Asian Development Bank’s $150 million were still to be used.

Talking about an increase in freight and insurance charges, the minister said that the World Bank and the IMF were providing necessary assistance to reduce LC cover charges for Pakistan.

Responding to a question the finance minister said that the government has refunded Rs11.8 billion to exporters during July-September this year which was 60 per cent higher compared to the corresponding period last year.

He said that the government has received Rs77.5 billion revenue during the first quarter of 2000-2001 against the target of Rs81.3 billion. He said the main reduction was experienced in custom duties.