August 26, 2003	Tuesday	Jumadi-us-Sani 27, 1424

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ISLAMABAD, Aug 25: Pakistan has decided to float euro bonds worth $300 million by November this year to have additional fiscal space to prepay debt of $1 billion to the multilateral creditors.

A finance ministry official told Dawn on Friday that under the debt reduction strategy, around $1 billion were being paid to the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB) during the current fiscal year.

A total of 22 programme loans have been selected which would be paid in advance to the three multilaterals. Islamabad will have to face certain financial penalties owing to prepayment of these loans but the amount would be negligible compared to the interest charges over the repayment period.

These loans carry up to 11 per cent of the interest rate together with service charges.

“We have calculated everything and it is estimated that Pakistan would save around $400 million over the entire life of the programmes even after paying the penalties,” said the official adding that repayment periods of some of these loans went beyond 20 years.

The official said it was decided that a total of $4-5 billion of the most expensive debt would be prepaid to various lenders before 2007; but the number of loans and the repayment schedule would be finalized in the next few weeks.

He said the IMF, the World Bank and the ADB were expected to be formally informed within this week about their loans.

Informal discussion have already taken place with the three donors who have welcomed the decision.

Talking about the $300 million euro bonds, the official said that they were to go to the international market before Christmas, otherwise the issue would have to be postponed till next calendar year.

Sources said Pakistan’s credit rating had improved a lot during the last couple of years and it was the right time to go to the international market to borrow through bonds.

Officials said the government had achieved four major milestones including improvement in the fiscal budget, balance of payment position, growth rate, and reduction in local and foreign debt burden, all of which together placed Pakistan ahead of other regional countries.

Sources said as part of the debt reduction strategy, resource mobilization from the local market would now be done solely through bonds and financing through treasury bills and saving schemes was being contained in a phased manner as the cost of borrowing through the latter had been found to be much higher.

They said shift from multilateral agencies to the open international market for resource mobilization would enable the government to take decisions on its own.

Pakistan’s domestic as well as external debt had reached alarming proportions and posed danger to the economic future of the country. This led to a fiscal deficit of around 7 per cent and current account deficit of around 5 per cent of the GDP and debt servicing cost at one stage had reached 66 per cent of the total revenue.

The net debt and liabilities have now been reduced to $26.498 billion from $36.9 billion in June 2000 mainly because of debt rescheduling by the Paris club.