ISLAMABAD, Nov 27: Japan has made all necessary arrangements for the rescheduling of its $5 billion bilateral debt owed by Pakistan by December this year.

“We have just concluded negotiations with France and Germany to reschedule their $2 billion debt (each $1 billion) and now we will be signing a bilateral agreement before Dec 30 with Japan for $5.3 billion debt as per the decision of the Paris Club,” said Secretary Economic Affairs Division (EAD), Dr Waqar Masood Khan.

Talking to Dawn here on Wednesday he said that a number of bilateral agreements had earlier been signed for $12.5 billion debts rescheduled by Paris Club for 35 years with a grace period of 15 years.

The government considered re-profiling of $12.5 billion debt, a big achievement, as nearly 50 per cent of this debt was due for payment by 2007. Then there were individual creditors who committed to either cancel their debts or have shown their willingness to swap them for social sector funding for up to $1.5 billion.

According to officials of the ministry of finance, the full extent of relief would be measured once the country had worked out all the bilateral agreements with bilateral creditors.

But based on rescheduling alone, a 30 per cent reduction in net present value of outstanding stock of debt has been achieved.

With the addition of cancellation, debt swaps and interest rate reduction, this figure was likely to rise to about 40 per cent of reduction in net present value.

The present government claims that over the past three years, it had lowered the burden of the most expensive foreign debt liabilities on Pakistan by nearly $2 billion from $38 billion to $36 billion as on June 30 this year.

This represents a reduction of nearly 5 per cent in foreign liabilities. In addition, the country’s external debt has undergone a major re-profiling, whereby, the share of expensive debt has declined compared to soft-term debt.

Both these initiatives were made possible through the combination of increased supply of foreign exchange and contraction of soft loans.

Officials said that as far as domestic debt was concerned, the government has managed some success by reducing outstanding domestic debt by 8 per cent last year.

This decline was primarily due to retirement of market-related treasury bills worth Rs193 billion.

Additionally, a combination of lower inflation and interest rate coupled with a favourable exchange rate has resulted in reducing the annual average growth in debt servicing to around 3 per cent over the last three years compared with that of around 20 per cent during the 1990s.