ISLAMABAD, Dec 13: The Paris Club on Thursday offered a $12 billion “stock re-profiling” of loans for 38 years under which Pakistan would have to pay nothing in debt servicing during the first 15 years.
“Pakistan is the fourth country after Egypt, Poland and Yugoslavia to get this unprecedented package from the Paris Club,” Finance Minister Shaukat Aziz told Dawn by telephone from Paris.
He described the offer as “beyond expectations” and “something amazing and incredible”.
He said that since Pakistan was implementing its economic reform programme, the Paris Club decided to favour it in a big way to help lessen its debt. “This all happened due to restoration of our credibility”.
“The stock re-profiling of debt for 38 years will eventually provide us 30 per cent debt write-off,” the minister said, adding the agreement included $0.5 billion loans write-off and debt swap by Canada, UK, Italy and Germany.
“Now our cash flow will greatly improve which will provide us an opportunity to look after our neglected social sectors adequately,” he pointed out.
According to a finance ministry announcement, the total stock of debt affected by this arrangement is in excess of $12 billion. Two-thirds of this debt relate to concessional lending, and will be rescheduled over 38 years, including a 15-year grace period. The remaining involves guaranteed commercial debt, and will be rescheduled over 23 years, including a 5-year grace period.
“This reorganization differs from Pakistan’s previous rescheduling agreements not only in that it treats the entire stock of eligible debt, inclusive of previously rescheduled debt, but also in that the repayment terms for concessional loans are nearly twice as favourable as in previous arrangements”.
Cash flow savings during the life of the recently approved 3-year IMF Poverty Reduction and Growth Facility are estimated at $2.7 billion, with significant savings during the subsequent decade, thereby removing the spike in debt service commitments.
The agreement is seen as a major milestone for the government’s economic reform agenda. The delegation, led by Mr Aziz, made a strong plea before bilateral creditors that Pakistan’s request for debt relief should be seen in the light of President Pervez Musharraf’s commitment for economic reforms and the policies pursued by his government over the last two years.
The representatives of the International Monetary Fund, the World Bank, the Asian Development Bank, and UNCTAD gave their independent views of Pakistan’s economic situation before they came out with support for the government’s request.
Commenting on the results of the meeting, the minister said, “this agreement is unique, not only for Pakistan, but also in terms of the Paris Club... and it further testifies to changing attitudes of the international community towards Pakistan.
“We consider today’s agreement as providing Pakistan with a credible exit from its external debt problem and with sustainability”.
He said the donors had showed flexibility and understanding of Pakistan’s debt burden by not strictly following the conventional terms of the Club. This understanding resulted in a stock treatment of virtually all of Pakistan’s outstanding bilateral debt which would provide the much needed fiscal space for poverty alleviation and enhanced allocations for the social sector.
The minister said that the reform process would continue unabated.
The arrangement is an umbrella multilateral agreement under which bilateral negotiations with different creditors will soon be undertaken. It is anticipated that reflecting the downward trend in international interest rates, the conditions of these bilateral agreements will further enhance the relief provided by the Club.
The Club meeting was presided over by its chairman, Jean Pierre Jouyet, head of the French Treasury, and was attended by the representatives of the IMF, the World Bank, the AOB, UNCTAD, and delegations from Austria, Belgium, Canada, Denmark.