ISLAMABAD: The Government of Pakistan has entered into negotiations with 21 creditor countries for debt suspension amounting to $1.7 billion. The G20 countries, together with the Paris Club creditors had announced a Debt Service Suspension Initiative (DSSI) to provide much-needed fiscal space to stressed countries in their fight against the Covid-19.
According to an official statement issued by the Economic Affairs Ministry, the Government of Pakistan has successfully negotiated and concluded rescheduling agreements with 19 bilateral creditors, including members of the Paris Club. Debt rescheduling agreements were signed on Monday with France, Switzerland, and China by the Economic Affair Division at Islamabad.
The signing ceremony was witnessed by senior embassy officials of these countries. On this occasion, the secretary Economic Affairs Division appreciated the debt suspension support provided by the G20 and Paris Club countries.
He said, it was timely, and had helped Pakistan save lives and livelihoods of millions during the difficult Covid-19 times. The federal cabinet had recently granted approval to the Economic Affairs Division to sign agreements with 16 countries over the rescheduling of G20 loans.
The EAD had submitted that G20 countries had deferred payments on loans worth $1.7 to $2 billion given to Pakistan during the period of May-December this year. The decision to defer loans and facility payments was taken in view of the coronavirus pandemic and will stay in effect till June 2021.
These 16 countries have signed loan agreements worth $800 million. The federal cabinet will review loan agreements worth $1 billion with five countries including the Kingdom of Saudi Arabia, and Japan. The Economic Affairs Division established a special desk to undertake the task in consultation with ministries of law and finance and other stakeholders. The G20 countries extended the loan suspension facility for low-income countries for the second phase.
It would provide additional benefit to Islamabad to the tune of $900 million on account of loan repayment. The Economic Affairs Division will be assigned to sign memoranda of understanding with all these countries for availing additional loan suspension facility of $900 million.
The G20 finance ministers in their meeting held in April 2020 announced debt relief for the IDA eligible countries to mitigate socioeconomic impact of the Covid-19. The EAD sought approval of the ECC for availing the G20 DSSI.
The ECC in its meeting held on May 20, 2020, approved the proposal and authorised the EAD to proceed with the signing of the memorandums of understanding (MoUs) with the creditor countries. The ECC's decision was later, ratified by the Cabinet on May 21, 2020.
Pursuant to the ECC decision, the Economic Affairs Division constituted a negotiation team comprising representatives of the EAD, the Finance Division, and the Law and Justice Division, and entered into individual negotiations with bilateral creditors. So far, 27 debt rescheduling agreements with 16 creditor countries had been negotiated and finalised.
Negotiations for finalisation of debt rescheduling agreements with the remaining bilateral creditors, i.e., Japan, Russia, Saudi Arabia, the United Arab Emirates, and the United Kingdom were currently underway. The sources said that it was expected that agreements with these bilateral creditors would also be finalised and signed before the deadline of December 31, 2020.
The G20 finance ministers and Central Bank governors in their meeting held on October 14, 2020 had announced extension in the DSSI for further period of six months, i.e., January-June 2021. The United States has stated that it has provided $128 million in debt relief to Pakistan in 2020, under the G20 DSSI.
Pakistan was expecting a total $1.8 billion temporary relief from the G20 member countries, if agreements with the concerned countries are reached. Of this, Pakistan can avail $613 million temporary relief from Saudi Arabia, followed by $309 million from China, $23 million from Canada, $183 million from France, $99 million from Germany, $6 million from Italy, $373 million from the UK, and $128 million from the US.
Salient points of the G20 debt relief announcement were given as follows; (i) extended debt suspension period, January 1 to June 30, 2021 (6 months); (ii) repayment period 5-year with 1-year grace period (6-year in total); (iii) the beneficiary country will not contract non-concessional debt during suspension period, other than agreements under this initiative or in compliance with limits agreed under the IMF Debt Limit Policy (DLP) or WBG policy on non-concessional borrowing; (iv) the beneficiary country to request all its official bilateral creditors and not only a subset and; (v) all other terms and conditions of April, 2020 0-20 Communiqué shall be applicable. Given the scale of the Covid-19 crisis, significant debt vulnerabilities and deteriorating economic outlook in low-income countries, the G20 finance ministers also recognised the need for debt treatment beyond the DSSI on a case by case basis.
Copyright Business Recorder, 2020
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