ISLAMABAD, Oct 13: Pakistan on Monday formally sent notices to the World Bank and the Asian Development Bank (ADB) that it would prepay $1.078 billion worth of their 18 loans during the current fiscal year.

Finance Minister Shaukat Aziz told a news conference here that $596.7 million worth of seven ADB loans were actually payable between 2007-2019 and carried interest rates ranging from 6.3 per cent to 11 per cent.

Similarly, $481.7 billion worth of 11 loans of the World Bank carried interest rate of 4.6 per cent to 7.6 per cent and were payable between 2005-2013. He said the penalty for prepayment of these loans would be nominal, and “has been accounted for.”

An official, however, told Dawn that the minimum penalty for the prepayment would be around five per cent of the interest rate, but the final amount would be worked out by the donors upon receipt of notices from the government of Pakistan.

“The money (for prepayment of loans) has been set aside and this would not affect the reserves position,” said the finance minister, adding that this fiscal space “has been created through treasury bills and Pakistan Investment Bonds (PIBs).”

The minister said that churning out notices to the World Bank and the ADB “starts the process of overall debt management strategy” of the government to prepay costly debt with cheap loans or reserves, and was a major step towards creating fiscal space to fund development and social sector.

He said the notices had been sent to the two donors through mail but he also had telephonic conversation on Monday with heads of the two institutions.

He said the letter of intent (LOI) had been signed and sent to the International Monetary Fund (IMF) on Monday with an economic review of the last two quarters.

He said the IMF board of directors would meet on Oct 27 and, if satisfied, would recommend release of two tranches totalling $228 million to Pakistan.

When asked about his earlier announcement concerning prepayment of IMF debt as well, the minister said that since IMF loans contained lower interest rates there was no need to prepay them. He said the major criteria for prepayment was higher interest rate. He said Pakistan would prefer to have grants from the multilateral donors instead of loans.

Talking about four-year economic performance of the government, the minister said the cotton production might be lower than the target due to a recent pest attack but Pakistan would achieve agricultural growth rate of 4.3 per cent and an overall GDP rate at 5.3 per cent set for the year because of better sugarcane crop.

He said against a target of four per cent for the current year, inflation during the first quarter “has remained at 1.8 per cent.”

He said the CBR revenue amounted to Rs94.2 billion against a target of 92.2 billion, while bank borrowing stood at Rs30.7 billion during the first quarter against a target of Rs43.5 billion.

“This showed that the performance was better than the target and, as a result, the fiscal deficit would also be lower than the target.”

He said the foreign exchange reserves stood at $11.44 billion on Oct 10 while the exchange rate also strengthened during the period.

Mr Aziz said the total foreign debt and liabilities “have come down to $35 billion from $38 billion in 1999.” The government aims to trim them to $35.5 billion by year-end.

He said the total public debt (including foreign) stood at 90.5 per cent of GDP on June 30, 2003, and “is targeted to be cut further to 84.4 per cent of GDP.”

The foreign currency debt was at 47 per cent of GDP in June 2003 against 64 per cent of GDP in 2000. The objective, he said, was to reduce cost and the size of total debt.

The minister said that external debt liability was 335 per cent of foreign exchange earnings in 1999 which “has now been slashed to 178 per cent in June 30, 2003.”