LAHORE – The business community Saturday applauded the government for securing debt relief of $1.7 billion for another six months from G20 and other creditors, calling for driving a campaign to write off Pakistan debt permanently, as the country has paid $10.4 billion on account of debt servicing during last fiscal year.
Federation of Pakistan Chambers of Commerce and Industry(FPCCI) President Mian Anjum Nisar said that the G20 countries, together with the Paris Club creditors announced a Debt Service Suspension Initiative (DSSI) amounting to $1.7 billion, which will provide much-needed fiscal space to Pakistan in its fight against the Covid-19 but the world should also pay attention to Prime Minister Imran Khan’s call to write off the debts of vulnerable countries, including Pakistan, as the coronavirus has shattered the economies of developing nations.
While second wave of COVID-19 hit Pakistan at a critical point in its macroeconomic recovery, the government’s ongoing efforts to ensure stability have started showing encouraging results this fiscal year. He said that G20’s present rescheduling of loans along with the ADB’s recent $300 million loan to Promote Macroeconomic Stability in Pakistan will support these efforts and help Pakistan to improve its export competitiveness,” he added.
He said that since fiscal year 2004, Pakistan has registered a rise-and-fall pattern of export growth reflecting underperformance in its export industry and long-term decline in export competitiveness. This is compounded by lost export growth momentum from COVID-19, which has reduced high-income countries’ demand for manufacturing goods and disrupted the supply of raw materials.
The world community should now think of some kind of a debt write-off for countries like Pakistan, as its major chunk of income is being spent on debt servicing, making it very vulnerable, he said.
He said that Pakistan has increased reliance on foreign commercial loans as the country has paid $10.4 billion on account of debt servicing of external public loans including principal payment of $8.5 billion and $1.9 billion in interest payments in the last fiscal year. “The government had to raise $3.4 billion through foreign commercial loans to meet external debt obligations and support the balance of payments. Hence, the government is conducting the highest external debt repayment and servicing ever done by any government,” he added.
It is appreciable that the government has successfully negotiated and concluded rescheduling agreements with 19 bilateral creditors, including members of the Paris Club for debt suspension amounting to $1.7 billion, calling for long-term loans’ relief to deal with the post-corona economic crunch.
FPCCI President Mian Anjum Nisar said though the global economy has begun a gradual recovery but it is not smooth, as many of the poor countries are still spending more on debt payments than on life-saving public services.
He said that the decision to defer loans and facility payments was taken in view of the coronavirus pandemic and will stay in effect till June 2021 just.
He said that Prime Minister Imran Khan was the first to highlight the issue as he called for a debt-write off. “We fully support the government which has already reached out to bilateral creditors to see if it can get some relief, as the country pays a large chunk of its tax money to foreign creditors.”
Last year, Pakistan paid $11.6 billion to lenders, which is almost as much as its central bank usually has in its reserves, he added.
“It is very welcome that both Pakistan along with other countries have collectively called for a moratorium on interest payments, as most of their debt consist of loans, which are borrowed to pay off previous loans, trapping them in a vicious debt cycle.”
He asked the world community to think of full debt write-off for countries like Pakistan that will help them to cope with the post- coronavirus sufferings.
He observed that Pakistan lacks fiscal space and a proper health system. Therefore, the most appropriate response that G20 countries can give, at the moment, is abandoning the loan instead of a temporary relief, he said.
“There is no benefit of G20 countries’ announcement of interim debt relief on principal and interest payments, as the suspension period for debt relief will remain only for few months and all debt service falling due in this period will be packaged into a new loan on which the repayments will again start after a short period, to be paid over three years.”