KARACHI, March 4: The State Bank Governor Dr. Ishrat Husain says that Pakistan will strive to get concessional loans as part of a strategy to keep the stock of external debt from rising.

In a paper titled Strategy for External Debt Management (1999- 2004) which the governor presented on Saturday at a meeting of the Institute of Bankers Pakistan he said: “While multilateral debt cannot be rescheduled or reprofiled we are substituting hard term loans to soft term loans and thus reducing the overall burden of debt servicing.”

Earlier, he had said that the recently secured debt stock reprofiling “will allow us the freedom to exit from the IMF after the present poverty reduction and growth facility programme is completed.”

Reminding the audience that the main motivation for Pakistan to approach the IMF has been its inability to service its external debt fully. “Under the present scenario when we have obtained a more permanent reduction in our debt servicing obligations for the future the pressure to negotiate another agreement with the IMF has eased unless we once again mess up our economic management or some other unforeseen external shock hits out economy.”

The governor said the debt relief will also provide some fiscal space and allow the government to accelerate its public investment expenditure and thus trigger a multiplier effect on the rest of the economy.

He said the creditworthiness indicators of Pakistan have improved significantly since Paris Club agreement was reached adding that creditors and foreign investors are now more confident that Pakistan will have the capacity to meet its new obligations without much difficulty.

“But let me caution you that we are not going to stop this bilateral debt relief and become smug and complacent about it,” Dr. Husain said. He said the debt relief secured recently was only a critical first element of the pro-active debt management policy that Pakistan has adopted.

Another element is that “while we will be paying back non- concessional loans obtained in the past from the World Bank, ADB and IMF we will be contracting new loans on concessional terms.”

The SBP governor said the country has already done this in case of the World Bank, which is providing credits on IDA terms i.e. at zero interest rate with 0.75 per cent service charge; 10- year grace period and 30-35 years repayment period. “The Bank has increased the annual volume of these concessional loans to Pakistan and we hope that this trend will continue in the next three years.”

Governor Ishrat Husain said another element of debt management is that the country has faithfully desisted from contracting commercial loans or short term loans.

“In the past our reserves were built up mainly by borrowing commercially and thus adding to our stock of debt as well as raising our debt service obligations,” he recalled. But now “we have built up our reserves slowly and gradually without any commercial borrowing and by mopping up excess supply of foreign currencies available in the open market and now in the inter- bank market.”

The governor said the country is making efforts to repay its existing commercial and short term loans “as fast as possible.”

The SBP chief said the net external debt and liabilities of Pakistan have come down between October 1999 (when the military government took over) and March 2002 from $37 billion to $34.4 billion showing a saving of $2.6 billion.

He said had the currency revaluation of debt stock not taken place the net debt stock would have been less than $33 billion. In other words Pakistan would have saved $4 billion ($37 billion minus $33 billion) between October 1999 and March 2002.