Much required breather: Pakistan earns G-20 Rs335 bn debt relief
Pakistan has so far reconciled its debt with more than a dozen bilateral creditors out of a total of 20 nations, and then the debt relief deal must be concluded with each nation individually before the deadline of 31 December 2020, in order to take advantage of debt relief of just over $2 billion (Rs335 billion), The News heard.
A top Finance Division official told The News on Sunday that the work was underway to have debt relief agreed by G-20 countries. “So far, over a dozen creditors out of a total of 20 have been reconciled, so we are making efforts to reconcile accurate debt data as soon as possible after which Islamabad will have to sign an agreement with each bilateral creditor separately,” the top official said.
Some reports claimed the deadline for debt relief was foreseen at 31 December 2020, but the government made every attempt to accomplish this mission during the first quarter until 30 September. According to the official, this debt relief of over $2 billion offered much-needed breathing room because if it hadn’t existed otherwise the exchange rate pressure would have risen in recent months due to payments on the outside sector.
Among the G20 nations, China is the biggest bilateral lender, with its unpaid liabilities to Pakistan piling up to $9 billion, led by Japan with $5 billion and the remaining countries, including South Korea, France, Germany, Canada, USA, Saudi Arabia and others.
Pakistani authorities requested World Bank assistance in establishing uniform model for obtaining debt relief from bilateral creditors which could not be established because of specific design specifications. Now in consultation with stakeholders and the Ministry of Law, the Economic Affairs Division has developed its own format for moving forward on this issue.
“We will shortly continue to conclude a different deal with mutual investors to use this tool to minimize the adverse consequences of the COVID-19 pandemic.”
Public debt in emerging economies has grown to rates not seen over the last 50 years, according to the World Bank, and several developed countries have rapidly taken on loans from private borrowers and non-Paris Club members on non-concessional terms. If the COVID-19 pandemic wreaked havoc on the world economy, developing nations that will be struck harder by the outbreak will face a debt crisis as well.
G-20 economies are allowing the world’s poorest countries to suspend repayment of official bilateral credit on May 01 with encouragement from the WBG, the IMF and others. This program would do a great amount to secure the rights and livelihoods of millions of the most disadvantaged. The G-7 has also suggested that the poorest countries should cancel their debt obligations.
The World Bank Group (WBG) and other organizations in Bretton Woods are ramping up financial assistance to IDA (International Development Association) countries to help them solve the crisis. As expected, we first evaluate the overall financial picture of the government, including the debt profile and the repayment consequences.
The WBG will spend as much as $160 billion in the next 15 months, of which $50 billion will come from IDA, the World Bank’s Fund for the Poorest, either in loans or extremely concessional terms.
Operations would concentrate on social security, poverty alleviation, and policy-based funding in addition to continuing health assistance.
For IDA countries — like those in Africa — the interest levels on loans to the World Bank are exceptionally small, with lengthy maturities with grace periods. Most of the IDA countries are now earning at least most-if not more-of their IDA money on grant conditions that do not bear any re-payments.
The IDA changes assist situations automatically. IDA acknowledges the restructuring of debt is a big issue in many low-income countries. Of this cause, as countries experience growing challenges in funding their foreign debt, even due to a global crisis, IDA immediately changes the conditions of its assistance to enable countries to continue receiving additional funds and technical assistance without raising their debts.