ISLAMABAD, Jan 29: Pakistan on Thursday remitted $1.171 billion (Rs62.92 billion) to Asian Development Bank (ADB) through a wire transaction, retiring earlier-than-schedule its most expensive debt that carried an interest rate of 8-11 per cent.

Finance Minister Shaukat Aziz handed over the 'prepayment' documents to ADB's Resident Representative, Marshuk Ali Shah, in the presence of President Pervez Musharraf and Prime Minister Mir Zafarullah Khan Jamali in Rawalpindi.

Mr Aziz told a news conference afterwards that the government intended to prepay a minimum of another $1 billion foreign expensive debt during the current calendar year.

With that payment, he said, the total foreign debt and foreign exchange liabilities would come down from $38.5 billion a few years ago to $33.5 billion on June 30, 2004.

The government has targeted to prepay a total of $4.5 billion foreign debt by 2007. The guiding principle of the debt retirement plan is to get rid of the most expensive loans first.

He said the $1.171 billion ADB debt was originally payable during the 2009-2019 period. This repayment ahead of schedule would provide a saving of $300 million (Rs17.1 billion) to Pakistan in interest payments.

He, however, declined to disclose the amount of penalty the government is required to pay to the ADB on this earlier-than-agreed payment. Director General Debt Coordination Committee Dr Ashfaq Hassan Khan, however, said the total penalty was below $30 million.

The finance minister said the prepayment was related to 14 loan programmes and added that Wapda had raised the required amount from the banking sector to fund the remaining portion of the two ongoing projects - Ghazi Barotha Hydropower Project and Energy Sector Restructuring.

The ADB had committed $300 million for Ghazi Barotha, of which only $45 million was yet to be disbursed. The second loan programme was $300 million Energy Sector Restructuring, for which $150 million had been disbursed and $150 million was pending.

The prepayment has been made out of foreign exchange reserves, the minister said. He told a questioner that part of this amount was taken out of the sinking account that the State Bank was maintaining on deposits of some friendly countries like China for balance of payment support.

An official statement said President Gen Pervez Musharraf called the prepayment of $1.171 billion a "historic" event. "It (pre-payment) is a great achievement and will have a snowball effect on the economy by improving our balance of payment position, drawing more investors and making additional funds available for development projects," the president said on the occasion.

He said the repayment reflected the country's resolve to reduce its debt burden, which for a long time had stifled the growth potential of the economy.

Tracing its effects on the availability of additional funds, the president said when his government took over in 1999, the debt servicing liability as a proportion of the budget was over 64 per cent which meant only 36 per cent left for development.

Referring to the four years of what he called "robust reforms", he said the government had undertaken to free the "trapped economy". He added that the country's economic sovereignty had been restored and was no more dependent on foreign assistance.