Debt loans waived during 9/11 come back to haunt Pakistan government

In the immediate aftermath of the September 11, 2001 attacks on the United States, former president Pervez Musharraf was able to get significant financial concessions from Western countries, including rescheduling some of Pakistan’s debt. That rescheduling is set to expire later this year, and Pakistan must begin repayments on $8.6 billion in loans in fiscal 2016.

In the first year, Islamabad would return $252 million to the Paris Club – the common name for 18 developed countries, formerly known as the Aid to Pakistan Consortium. In September 2001, the Paris Club rescheduled $12.5 billion Pakistan’s debt. Out of that $3.6 billion in Non-Official Development Assistance (ODA) had been rescheduled for five years and its payments already started in 2006.

In the outgoing fiscal year, Pakistan returned $233 million to Paris Club on account of non-ODA debt. The Paris Club’s remaining outstanding balance stood at $11.6 billion by March 2015 – roughly $900 million less than the amount rescheduled in 2001. However, the major chunk of $8.6 billion of concessionary loan, Official Development Assistance (ODA) had been rolled over for a period of fifteen years. The repayments would not have any adverse impact on the country’s debt servicing capacity, said an official of Ministry of Finance and Economic Affairs. He said the $8.6 billion repayments are spread over a period of twenty-three years and the government can return the debt without borrowing additional funds.

The $252 million in repayments are part of $5.1 billion loans that Pakistan will be returning to the international creditors in fiscal year 2016, beginning from July 1.Islamabad will borrow $1.2 billion from the Islamic Development Bank for crude oil imports and another $1 billion by floating a bond on the international capital markets.“There is a misperception that the Paris Club rescheduled the debt in return of Pakistan’s services in war against terrorism,” said Ashfaque Hasan Khan, who served as an Economic Advisor at the Finance Ministry in 2001 and is the current dean of the business school at the National University of Science and Technology in Islamabad.

He said the Paris Club debt was rescheduled under an International Monetary Fund arrangement and the 9/11 attacks in a way helped Pakistan to push its case for rescheduling. It was the third rollover in three years.

Pakistan has saved $1.5 billion due to the rescheduling of the Paris Club debt. The Paris Club comprises Austria, Belgium, Canada, Finland, France, Germany, Italy, Japan, South Korea, The Netherlands, Norway, Russia, Spain, Sweden, Switzerland, the United States and the United Kingdom.

Out of $8.6 billion ODA debt, Pakistan owes $4.1 billion to Japan, which is 47% of the total ODA. The second largest share is of the United States which rolled over $2.4 billion, or 27% of the total debt. A dozen European Union countries had rescheduled $1.9 billion or slightly over one-fifth of the total ODA loans.

Pakistan owes $300 million to Canada, $52.6 to Spain, $580 million to France, $942 million to Germany, $161 million to Italy, $85 million to The Netherlands, $28.1 million to Belgium, $15 million to Switzerland and $18.4 million to Denmark.