January 14, 2003	Tuesday	Ziqa'ad 10, 1423

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ISLAMABAD, Jan 13: Pakistan’s external public and publicly-guaranteed debt will decline from a fiscal year 2002-03 estimated level of 250 per cent of the current account earnings to 191 per cent by 2006-07, predicts the Asian Development Bank (ADB).

“In terms of net present value (NPV), a significant reduction in the stock of the public and publicly-guaranteed external debt is expected to decline by 2006-07; the anticipated level of the NPV of the debt stock (short, medium and long-term) declines to 164 per cent of projected foreign exchange earnings, from a 2002- 03 post-Paris Club agreement level of 215 percent,” it said.

The local ADB office released here on Monday details about the debt and said the sustainability of external debt would be promoted by the enhanced debt-servicing ability that was projected to accompany the improvement in the overall external account, which would underpin a greater ability to absorb external shocks.

ADB’s Resident Mission in Pakistan (RM) is launching a series of working papers, to make available ADB’s on-going economic and social sector work to a wider audience. The first in this series of papers is entitled “Escaping the Debt Trap: An Assessment of Pakistan’s External Debt Sustainability.”

“As a consequence of lack of fiscal discipline over an extended period of time, Pakistan experienced a mounting debt burden through the 1980s and 1990s. By the middle of the 1990s, the country was exhibiting many of the classical symptoms associated with a debt trap: falling progressively lower rates of GDP growth.

“These factors served to reinforce the growing vulnerability of the economy and accelerated its slide into macro-economic instability.

“By the time the country conducted nuclear tests and the freezing of foreign currency accounts occurred in May 1998, both its public and external debt burdens had become unsustainable,” the ADB paper said.

“The previous government announced an economic revival plan soon after coming into power in October, 1999, and also launched a formal debt-exit strategy under the aegis of a high-powered Debt Management and Reduction Committee.

“A medium-term framework for debt reduction was presented by the committee, the essential features of which were strong fiscal adjustment, strong financing support on concessionary terms from the International financial institutions (IFIs), and the use of privatisation proceeds for debt reduction.

“Pakistan had thus laid the basis for escaping from the debt trap by the end of 2001-02, and substantial progress had been made on fiscal adjustment and revenue enhancement measures.

“Pakistan’s decision to support the war against terrorism resulted in pledges of substantial international assistance to mitigate the likely economic impact of the September 11, 2001, events.

“The most notable were sizable cash grants by certain Group of Seven (G-7) countries; increased market access to the European Union, and most potently, a re-profiling of bilateral external debt undertaken by the Paris Club creditors.

“Due to these decisions, coupled with a substantially higher flow of remittances from expatriate Pakistanis, the country’s gross foreign exchange reserves rose to an unprecedented level, crossing $9 billion as of early November, 2002.

“As a consequence of the unanticipated improvement in Pakistan’s balance of payments, the acute vulnerability associated with its external account for much of the 1990s has dissipated significantly.

“This appears to be providing the catalyst for a significant reversal of the systemic outflows of private capital experienced in the previous decade.”

The ADB paper said that in spite of a tangible improvement in the underlying dynamics, the favourable outturn projected under the baseline forecast was predicated largely on the continuation of the benign external environment Pakistan had had experienced lately.

“Specifically, it will require a sustained commitment from Pakistan’s present and future governments, its donors, and official creditors to protect and promote the tangible yet tentative early progress towards debt sustainability,” the ADB paper concluded.