ISLAMABAD, March 28: Japan on Friday rescheduled its consolidated $4.5 billion debt owed by Pakistan for 38 years on a lower interest rate.

Secretary for Economic Affairs Division (EAD) Dr Waqar Masood Khan and Charge d’Affaires of Japan Embassy in Islamabad Tamotsu Shinotsuka signed the agreement at a news conference where Prime Minister’s Advisor on Finance Shaukat Aziz was also present.

This was the 16th bilateral agreement which was signed in pursuance of the Agreed Minute of the Paris Club signed on December 13, 2001, covering a total debt relief of $12.5 billion.

“This is a momentous day for Pakistan as today we completed the re-profiling of over 90 per cent debt,” said the prime minister’s advisor.

He said that now less than $1 billion debt of South Korea and Russian owed by Pakistan was to be rescheduled shortly.

Consolidated debt carries the following interest rates:

JBIC-ODA debts covering former OECF loans 1.8 per cent, JBIC-ODA debts covering previously Rescheduled loans of Japan Exim Bank six months yen LIBOR plus 0.50 per cent per annum, JBIC non-ODA debts six months Yen LIBOR plus 50 per cent annum and Commercial debts insured by METI 5 years Japanese Government Bond yields plus 0.50 percent per annum.

Mr Aziz said that Pakistan had been the fourth on Highly Indebted Poor Countries (HIPC) to get its bilateral debts rescheduled on favourable conditions by the Paris Club after Egypt, Poland and Yugoslavia.

From the Paris Club creditors, Denmark and Commonwealth Development Corporation (CDC) of the UK have waived off their entire outstanding debt of $18.4 million and 29.5 million respectively, while Netherlands has also given remission in debt service payments falling due during Oct 2001 to Dec 2002 equivalent to $14.3 million and the total cancellation of debt thus comes to $62.2 million.

Similarly, the United States has also committed to cancellation of $1 billion debt for which draft agreement has been received and is expected to be signed shortly. From the non-Paris Club creditors Saudi Arabia has provided grant assistance of $50 million in cash as re-financing arrangements instead of rescheduling of its outstanding debt under the Paris Club-III.

The adviser on finance said that estimated relief of $1.2 billion to $1.5 billion annually will accrue in payment of debt servicing on it external debt during the years 2001-2002 to 2004- 2005. This will create a favourable effect in the balance of payments as well as external/financing position of the economy. And coupled with fresh disbursement from multilateral (IMF, World Bank and Asian Development Bank) and bilateral (USA, UK, Japan and Saudi Arabia etc) creditors not only the balance of payments but also the foreign exchange reserves position and credit rating of the country has improved.