ISLAMABAD, Dec 20: Belgium has rescheduled Pakistan’s $27.89 million debt for 38 years including a grace period of 15 years without any interest.

An agreement to this effect was signed here on Friday. Secretary Economic Affairs Division Dr Waqar Masood Khan and Christophe Payot, Charge d’Affaires of the Belgian Embassy in Islamabad, signed the agreement on behalf of their respective governments.

In pursuance of the Paris Club Agreed Minute of December 13, 2001, negotiations were held between Pakistan and Belgium on the consolidation and rescheduling of the bilateral debt.

This is the 12th bilateral agreement on rescheduling arrangements under Paris Club which has been signed with the Paris Club Creditors. The other agreements have been concluded with Finland, United States, Canada (EDC&CWB), Austria, Spain, Germany, the Netherlands (non-ODA debt only), Norway, France, Denmark and Switzerland.

The government considers re-profiling of $12.5 billion debt by Paris Club a big achievement as nearly 50 per cent of this debt was due for payment by 2007. Then there were individual creditors who committed to either cancel their debts or have shown their willingness to swap them for social sector funding for up to $1.5 billion.

Japan is now expected to reschedule its $5 billion bilateral debt owed by Pakistan by December this year.

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

With the addition of cancellation, debt swaps and interest rate reduction, this figure was likely to increase to about 40 per cent of reduction in net present value.

The present government claims that over the past three years, it has lowered the burden of most expensive foreign debt liabilities on Pakistan 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 compared to soft-term debt. Both these initiatives were made possible through a combination of increased supply of foreign exchange and contraction of soft loans.

Officials said that as far as domestic debt was concerned, the government had managed some success by reducing outstanding domestic debt by eight per cent over last year. This decline was 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 three per cent over the last three years compared with that of around 20 per cent during the 1990s.