Escap sees mounting debt-servicing burden

The United Nations Economic and Social Commission for Asia and the Pacific (Escap) said on Thursday that Pakistan is likely to face higher external debt-servicing burden as repayments of the rescheduled non-ODA Paris Club stock has resumed in 2008.
The new government will have to approach the international donor agencies and lenders for loans, which are not likely to be available for Pakistan on soft terms, said Sarfraz Khan Qureshi, Director, Innovative Development Strategy (IDS), while explaining the salient features of the survey.
In the recent past it was said that Pakistan had broken the begging bowl, but the new government will again have to approach the international financial institutions (IFIs), Sarfraz told the ceremony, which was not attended by any government official.
Pakistan is also likely to shortly pay for foreign currency bonds as some of them are getting matured this year, said the survey, which could further tighten the situation for Pakistan. The survey says that both domestic and external public debt carry concerns of higher interest rates and lower private investment.
Pakistan debt growth over the 1990 was unprecedented, but a credible debt reduction strategy and faster economic growth reduced the public debt burden from 84 percent of the GDP in 2000 to 57 percent in 2006.
The survey gave an interesting account that reduction in debt to GDP ratio came by way of rescheduling, a debt swap for social spending, debt cancellation and pre-payment of GDP in 2005. Escap says that for most South Asian nations, including Pakistan, public debt remains a serious problem with domestic public debt now accounting for a larger component of total public debt.
As a result the debt service ratio has declined substantially over the years 2000 to 2006 though some 30 per cent of government revenues remain allocated to debt servicing. Escap says the reduction in public debt has enabled funds to be freed for development expenditures, from about two per cent of GDP in 2001 to about five per cent of GDP in recent years.
"An ESCAP Secretariat analysis shows a further 20 per cent decrease in public debt service to government revenue ratio could increase development spending by 24 per cent," it said. According to the survey, Asia-Pacific region heightened uncertainty over the credit crunch and US slowdown.
Survey notes that under a worst case scenario with the US falling into recession and a deeper depreciation of the dollar, the impact on much of the region will be harsh. However, the survey also opined that Asia-Pacific region's strong macro-economic fundamentals and underlying regional domestic demand will act as a vital buffer to any significant US downturn.