Pakistan among latest countries to get Paris Club debt relief

PARIS: The Paris Club of creditor nations have agreed to suspend debt service payments from Pakistan, Chad, Ethiopia and the Republic of Congo as part of a G20 debt relief deal, the group said.

The Group of 20 leading economies and the Paris Club, an informal group of state creditors coordinated by the French finance ministry, agreed in April to freeze debt payments of the 77 poorest countries this year to free up cash to fight the coronavirus pandemic.

The latest agreements bring to 12 the number of countries to receive debt relief under the deal with a total of $1.1 billion in debt deferred as a result, the Paris Club said, adding 30 countries had requested to benefit.

Earlier in May, Pakistan formally requested members of G-20 nations for debt relief with a commitment of not contracting new non-concessional loans, except those allowed under the International Monetary Fund (IMF) and World Bank guidelines.

The formal requests were sent to individual countries under the G-20 Covid-19 Debt Service Suspension Initiative.

Pakistan had also intimated to the IMF, the World Bank and the Paris Club about its decision to formally seek debt relief. Last month, the IMF’s Resident Representative to Pakistan Teresa Daban had said that Pakistan did not officially make any request to G-20 countries for debt relief.

Pakistan owes $20.7 billion to 11 members of the Group of 20 rich nations. Out of this sum, an amount of $1.8 billion would mature by December 2020, including the interest payments, according to the economic affairs ministry.

On April 15, the G-20 nations announced a freeze on debt repayments from 76 countries, including Pakistan, during May to December 2020 period, subject to the condition that each country would make a formal request.

On April 16, an IMF report had estimated Pakistan’s post-Covid-19 external financing requirements at $25.8 billion with a financing gap of $2 billion. For the next fiscal year, the IMF projected Pakistan’s gross financing requirements at $29.3 billion and a financing gap of $1.5 billion.

The IMF had approved $1.4 billion emergency loans, which largely bridged the projected financing gap but the amount fell short of the full needs. Pakistan’s exports and foreign remittances were projected to be affected by the “Great Lockdown”, which had put additional burden on the official foreign exchange reserves.

The IMF report stated that though Covid-19 shock had increased near-term risks, with strong policy implementation under the EFF and continued support by multilateral and official bilateral creditors, Pakistan’s debt remained sustainable over the medium-term.

The IMF had projected that Pakistan’s debt-to-GDP ratio would increase to 90% by June this year before slightly receding in the next fiscal year. However, the World Bank showed a further increase in debt-to-GDP ratio at 91.3% by June 2021.