ISLAMABAD, Nov 25: In one of its findings, also made available to Pakistan, the IMF has observed that Pakistan’s debt reduction path is on sound and solid footing and is now heading towards a sustainable level.
Talking to Dawn here on Tuesday the Director-General of Debt Coordination Office, Dr Ashfaque Hasan Khan, who is also the Economic Adviser to the Ministry of Finance, said according to this IMF finding, Pakistan’s public and external debt would decline significantly during the next five years.
“Fund officials believe that public debt appears to be on a solid downward trend,” he said. The IMF, he pointed out, has conducted a “stress test” for Pakistan by artificially devaluing its currency by 30 per cent and despite that it concluded that the country still remained on solid debt reduction path.
The director-general of the debt office said that he was currently preparing a paper on debt which would be submitted to the federal cabinet. In fact, he said, he would be briefing the cabinet in early January 2004 about the government’s medium term debt reduction strategy.
“This strategy will reveal how we plan to further reduce our budget and external account deficits and at the same time lower the cost of borrowing and increase the GDP growth,” Dr Khan said.
A decision, he said, had been taken that the government would now be borrowing only concessional loans at the maximum interest rate of one per cent and that too for certain development projects from the World Bank and the Asian Development Bank (ADB).
Responding to a question, he said, Pakistan’s multilateral debt stood at $15 billion as on June 2003 which also included roughly $4 billion of expensive debt to be retired on priority.
He said that notices had already been issued to the World Bank and the ADB about Pakistan’s intention to repay $1 billion within the current financial year. According to the plan,he said, foreign debt amounting to $4.5 billion will be repaid in the next five years.
Dr Khan said that the persistence of large fiscal and current account deficits and the associated build-up of public and external debt have been the major sources of macroeconomic imbalances in Pakistan in the 1990s. The twin deficits resulted in an explosive accumulation of both the domestic and external debt.
The domestic debt, he said, was growing at an annual average of 16 per cent during 1990-99 and had reached almost 52.0 per cent of the GDP by 1999-2000 from 44.1 per cent in 1990-91. In other words, the domestic debt grew four-fold — rising from Rs448 billion to Rs1645 billion in one decade.
Independent economic experts, however, said the main reason for this four-fold jump in domestic debt during the decade of 1990s was the sudden escalation, under pressure from the IMF, by more than five-fold in the rates of borrowing for the budget from 1992 onwards.