Call for comprehensive debt relief for Pakistan



9th October, 2001.

LONDON : Clare Short, UK Development Secretary, has called for comprehensive debt relief for Pakistan, saying donor governments should support a sustained reform drive in the country rather than rely on short-term fixes. She told newsmen that Pakistan should be made eligible for debt rescheduling and relief under terms usually reserved for poorer countries. "This would serve geopolitical ends while keeping Pakistan on track with its recent impressive reform efforts," Ms Short said.

Debt relief and aid for Pakistan have come under intense scrutiny because of the country's key strategic role in the US-led alliance targeting Osama bin Laden, the key suspect in the September 11 attacks in the US.

Pakistan is not at present eligible for debt relief under the rules of the Paris Club - the organisation of donor countries - because the World Bank finds it as sufficiently creditworthy to be able to borrow on commercial terms. This also excludes it from the heavily - indebted poor countries (HIPC) debt relief initiative administered by the International Monetary Fund and World Bank.

But the country is struggling under a $38 billion stock of external public debt, of which more than half is owed bilaterally to donor governments. Leading creditors include Japan, the US, France and Germany. Debt service is projected to consume nearly one-third of Pakistan's export earnings this year.

An IMF review of the country published on Friday concluded: "The financing gaps will remain large (about $ two billion annually during 2002-3 and 2003-4) and will have to be closed by continuing exceptional financial support, including additional debt rescheduling."

For the first time in its recent history, Pakistan recently successfully completed a one-year IMF lending programme. Shaukat Aziz, the finance minister, will visit Washington this week to start negotiations for a new three-year programme, expected to total more than $ one billion. -PPI