ISLAMABAD, Aug 19: The government has finalized necessary arrangements for rescheduling the $5 billion bilateral debt by October this year.

“We have just concluded a debt rescheduling agreement with Finland and accords with remaining eight countries, including the United States and Belgium, for about $5 billion debt will be signed by September/October 2002,” Secretary Economic Affairs Division (EAD) Dr Waqar Masood told Dawn on Monday.

He said a number of bilateral agreements had been signed earlier for $12.5 billion debt rescheduled by the Paris Club for 35 years with a 15-year grace period.

“Out of $5 billion, $3 billion debt to be rescheduled belongs to the United States alone,” Dr Waqar said, adding the EAD had worked out all the details to complete the job in time.

The government considered re-profiling of $12.5 billion debt a big achievement as nearly 50 per cent of this debt was due for payment by 2007. There were also individual creditors who showed their willingness to swap them for social sector funding for up to $1.5 billion.

According to the officials of the finance ministry, the full extent of the relief will be measured once the government completes all the agreements with the bilateral creditors. However, based on rescheduling alone, a 30 per cent reduction has been achieved in the net present value of the outstanding stock of debt.

With the addition of cancellation, debt swaps and interest rate reduction, this figure is likely to increase to about 40 per cent.

The government claims that over the past two and a half years, it had lowered the burden of most expensive foreign debt liabilities by nearly $2 billion from $38 billion to $36 billion as on June 30 this year. This represents a reduction of nearly 5 per cent in foreign liabilities.

In addition, the country’s external debt has undergone a major re-profiling, whereby the share of expensive debt has declined as compared to soft-term debt. Both these initiatives were made possible through combination of increased supply of foreign exchange and contraction of soft loans.

The officials said as far as domestic debt was concerned, the government had managed some success by reducing the outstanding domestic debt by 8 per cent over the last year. This decline was possible primarily due to retirement of market-related treasury bills worth Rs193 billion.

Additionally, a combination of lower inflation and interest rate coupled with a favourable exchange rate has resulted in reducing the annual average growth in debt servicing to around 3 per cent over the last three years compared with that of around 20 per cent during the 1990s.