ISLAMABAD, Sept 12: The government has finalized a strategy to cut public debt from 61.7 per cent to 45 per cent of the GDP in next five years, says a senior government official.

“Similarly, a decision has been taken to bring down our external debt to 25 per cent from 32 per cent of the debt-to-GDP ratio in five years”, said Dr Ashfaque Hasan Khan, Director General of the Debt Coordination Office.

He told Dawn on Monday that the government was ensuring fiscal discipline to substantially cut both public and external debts with a view to further reduce the burden on the country’s economy.

“We have to stay the course and maintain fiscal discipline to achieve our objectives of reducing both local and foreign debts”, Dr Khan who is also the economic adviser to ministry of finance said.

The government, he pointed out, was following a comprehensive debt policy that helped reduce over 100 per cent public debt-to-GDP ratio since 1998-99.

“Pakistan has emerged as a role model in reducing its debt burden in the developing countries”, the director general debt office said.

Pakistan’s public debt as percentage of GDP has declined to 61.7 per cent from the previous year’s 67.7 per cent in one year, says a latest official report.

“Public debt continues to decline rather sharply over the last five years with significant improvement in fiscal situation”, it further claimed.

According to one year performance report of the government (August 2004 to August 2005), a copy of which was also made available to Dawn, Pakistan was facing serious difficulties in meeting its external debt obligations. Not only it was the stock of external debt and foreign exchange liabilities growing at a breakneck pace, but the debt carrying capacity remained stagnant.

However, following a credible strategy of debt reduction, Pakistan has succeeded in reducing the rising debt and liabilities stood at $35.8 billion during the year.

The external debt and liabilities as percentage of foreign exchange earnings declined sharply to 137.2 per cent from 164.9 per cent a year ago. Prudent debt management, the continued build up in foreign exchange reserves and the higher foreign exchange earnings, pre-payment of expensive debt and debt write-off were the major factors for the reduction in the country’s debt burden, the report said.

An agreement under PC-III was signed with Russia amounting to $127 million. Rescheduling Agreement dated December 13, 2001, has a provision for voluntary debt relief on bilateral basis by means of debt swaps. Canada, Germany, Italy and Norway offered debt swap arrangements on voluntary basis with regard to amounts of more than $700 million.

During this one year period, economic assistance to the total of $2.9 billion was generated. Out of the total aid commitment, $2 billion has been committed as project aid and $950 million as non-project aid and $3 million as relief assistance for Afghan refugees. During the year, total disbursement amounted to $2.2 billion.

Out of the total disbursement, $705 million have been disbursed as project aid; $1.5 billion as non-project aid (food aid non-food aid). There has been substantial increase in annual bilateral assistance from Pakistan’s development partners as UK has increased the annual package with increased focus on maternal and neo natal health care. Loan agreement with Germany would finance 1,400-mw of Ghazi Barotha dam; European Union has also increased the annual package this year, grant assistance from USAID, Japan and Norway for economic and infrastructure development of FATA regions has been provided; expanding road linkages under the Asian Development Bank (ADB) assistance programme and major intervention in the education sector with assistance of the World Bank were major contributors during the year.

Also, Pakistan had successfully attracted $1.5 billion Foreign Direct Investment (FDI) during the last one year as against $950 million a year ago, showing an increase of 60.6 per cent. Over 70 per cent of the FDI has come into power sector; telecom sector; chemicals, pharmaceutical and fertilizer; oil and gas; and banking and finance. Almost 70 per cent of FDI has come from USA, UK, Switzerland, Japan, UAE and Netherlands.