ISLAMABAD, Aug 27: The US government has indicated that it would write off Pakistan’s roughly $1 billion out of the total of $3 billion debt which has just been rescheduled for 23 to 38 years.

According to informed sources, the Bush administration has specified in the proposed US 2003 budget that roughly $1 billion debt could be cancelled to help the President Musharraf government to further improve its budgetary position.

“There is a strong possibility that the United States government would cancel about $1 billion debt, and if that does not happen, then half of our US debt is expected to be converted into swap funds to alleviate poverty and allocate more funds for education and health”, a source said.

He said the issue will figure prominently during talks between President Bush and President Musharraf when the later visits the United States early next month.

Sources said that the ministry of finance and the Economic Affairs Division (EAD) have completed their homework to get US debts substantially cancelled or converted into social sector spending through swap.

The government is also expecting that the US government will further announce budgetary support for Pakistan during President Musharraf’s visit to the United States. The US government had earlier provided $600 million cash as part of the budgetary support.

The cancellation of debt by the United States, sources said, could also lead to writing of considerable Japanese debt. Pakistan owed $3 billion debt to Japan which was also to be bilaterally rescheduled in lines with the decision of the Paris Club.

The Minister for Finance Shaukat Aziz had visited Japan in January this year and reportedly raised the issue and was told that currently there was no law that allowed any Japanese government to write of bilateral debt of any country.

However, he was assured that some mechanism could be evolved to consider the Pakistan’s request.

“But there is a strong possibility that Japan would convert its substantial amount of debt into social sector funding through swap,” a source said.

The United Kingdom and Canada have already converted their about $100 million debt into social sector funding specially for health and education.

Generally, sources said that bilateral donors were supportive of the government’s various initiatives to reduce poverty and improve other poor social indicators.