ISLAMABAD, April 5: Pakistan and the United States signed on Saturday an agreement that cancelled $1 billion debt owed by Islamabad to Washington.

Ms Nancy Powel, the US Ambassador to Pakistan, and Dr Waqar Masood Khan, Secretary Economic Affairs Division (EAD), signed the agreement on behalf of their respective governments.

Pakistan now owes $2 billion debt that had been rescheduled under the Paris Club Minutes signed on Dec 13, 2001. In Net Present Value, originally the debt was $200 million which over the years continued to accumulate and reached $1 billion due to the inability of successive governments in Pakistan to repay it.

“This $1 billion in debt relief will add to the momentum of Pakistan’s economic recovery by allowing the government to focus more of its energies and budget resources on critical social development priorities, identified in the government’s poverty reduction strategy,” Ms Powel later told reporters.

“I want to stress that the forgiveness of $1 billion in bilateral debt is just one piece of multi-billion-dollar assistance package the US government is providing to Pakistan,” she added.

The US ambassador pointed out that her country’s bilateral economic programmes also included significant outright grant, additional debt relief and USAID initiatives in education, health, governance and micro-finance programmes to combat child labour, agricultural grants and credits and broad trade and investment support.

“Our assistance means more room in the federal budget to pay for schools in the rural areas, improve teacher training, expand immunization programmes for children and teach young people about HIV/AIDSs,” she said.

The ambassador said that the US support was also meant for security assistance programme to help Pakistan secure its borders with Afghanistan, and pursue law enforcement, anti-narcotics and anti-terrorism programmes.

Ms Powel said new US relations with Pakistan were not just about 9/11 — they was about the rebirth of a long-term partnership between the two countries.

Shaukat Aziz, the PM’s Adviser on Finance, said on the occasion that net debt liabilities “have now been reduced to $28.67 billion” by end-December 2002 — a reduction of $8.23 billion in three years and a half.

He said it was important to note that Pakistan not only succeeded in reducing external debt but also in building up substantial foreign exchange reserves. In other words, he said, total external debt and foreign exchange liabilities, when adjusted for the SBP reserves, stood at $36.9 billion by end-June, 2002.

US President George Bush, during President Musharraf’s visit to his country in Feb 2002, had committed that he would work with the US Congress for the cancellation of Pakistan’s $1 billion debt during the next US fiscal year, that started on October 1, 2002.

With the cancellation of $1 billion US debt, the total write-off offered to Pakistan by donors has reached $1.062 billion. Earlier, Denmark also waived its entire debt of $18 million while the UK cancelled its debt amounting to $30 million.

Also, the Netherlands has granted remission of $14 million in debt servicing that fell due during the calendar year 2002.