ISLAMABAD, Oct 15: The World Bank has agreed to provide financial and technical assistance to strengthen Pakistan’s debt management capacity, and initially database of the State Bank of Pakistan, Economic Affairs Division (EAD) and the Central Directorate of National Savings (CDNS) will be reformed.
Official sources told Dawn on Saturday that the visiting World Bank’s financial sector team had concluded its talks with Pakistani officials, assuring to offer considerable financial and technical assistance during 2005 to strengthen the country’s debt management capacity.
The government has shared its debt reduction plan with the World Bank team which believed that different stakeholders, including the central bank, EAD, CDNC and the Debt Coordination office, will have to synchronize their efforts with a view to reducing the nation’s debt burden.
The sources said the World Bank will provide funding for hiring experts to improve the capacity building of various government organizations. Also, the bank will offer the services of its consultants for training Pakistani officers.
The sources said that the World Bank was informed that the country’s external and public debt had shrunk as a result of adequate measures taken both at the provincial and federal levels.
Pakistan external debt, the WB team was told, had contracted from $38.9 billion in 1998-99 to $35.8 billion in June 2005. The real issue was the burden of debt, and that debt to GDP ratio had been cut from 66 per cent in 1998-99 to 32.5 per cent in June 2005.
Similarly, external debt to foreign exchange reserves had been lowered from 28 per cent to 2.8 per cent which was a sharp reduction. And debt to foreign exchange earnings, which was 347 per cent in 1998-99, has been reduced to 135 per cent in June 2005.
“We have told the WB that our debt burden has been halved,” he said, adding that the team was also informed that public debt to GDP ratio, which was over 100 per cent in 1998-99, had come down to 61.7 per cent in June 2005.
“The financial sector team of the WB was told that Pakistan’s debt was fast approaching to a sustainable level,” a source said, adding that the World Bank believed that Pakistan had emerged as a role model for developing countries in terms of reducing its debt burden.
In this behalf, the bank’s team was informed that the Fiscal Responsibility and Debt Limitation Law, which had been passed by parliament, will ensure that Pakistan’s debt burden did not increase.
The WB team, the sources said, termed the debt limitation law a major development for Pakistan.
There is a general belief that growth of public debt can be curtailed by curtailing the fiscal deficit. However, this is not considered always possible on account of contingent liabilities.
These are government commitments (contractually binding or otherwise) outside the budget, which are dependent upon future events that may or may not materialize. Contingent liabilities may continue to accumulate over time and ultimately add to public debt, thereby thwarting efforts at containing public debt by limiting the fiscal deficit.
The contingent liabilities of the federal government, the sources said, mainly emanate from losses of public sector corporations and banks.
