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  • Nov 27th, 2005
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Sixty percent of donors' $4 billion soft loans pledges at 0.5 percent service charges for 40 years, including 10 years grace period, for rehabilitation and reconstruction work in the earthquake-hit areas of NWFP and Azad Kashmir would ultimately become 'grants', Adviser to Finance Ministry, Dr Ashfaq Hassan Khan, told Business Recorder here on Saturday.

In an interview he said that there seemed to be a lot of misunderstanding and confusion about utilisation of the $6.2 billion assistance pledges made by bilateral donors and multinational financial institutions at the Islamabad Donors Conference to bring back life to normalcy in the calamity-stricken areas.

He clarified that of the pledged amounts, about $2 billion were in cash and kind, like food, medicines, blankets, winterised tents, fuel etc, and now the government is in the process of pursuing the donors to materialise these promises.

However, he said, over $4 billion assistance pledges are in the form of soft loans--at 0.5 percent interest or service charges--which could not become debt burden unless Pakistan physically took those loans.

He said: "Assuming that Pakistan takes recourse to these soft loans at 0.5 percent service charges for 40 years period, what would be the value of $4 billion after 40 years?" he put a counter question, and then clarified that "international financial markets give loans at 6 to 6.5 percent interest for five to 6 years only, and if $4 billion was converted into market rates loans, 60 percent would become grants."

He said that these $4 billion soft loans would not be taken in one year but in 4 to 5 years, in instalments of $800 to $900 million every year, which is the normal money Pakistan takes from financial institutions to balance its yearly budgetary requirements.

He said that Pakistan needed these soft-term loans since its domestic resources were not enough to take up such a gigantic rehabilitation and reconstruction work in the vast hilly and mountainous areas.

He reiterated that the Public Sector Development Programme (PSDP) was not being curtailed but its federal component was being reprioritised under a new initiative to provide schools, hospitals, shelters, rural roads, electricity and other necessities of life in the earthquake-stricken areas, without affecting the on-going development projects in any part of the country.

He said that the Public Sector Development Programme would be reviewed in January 2006 wherein more steps would be approved for speeding up the reconstruction work in the affected areas. "The massive reconstruction work is not likely to be undertaken before next spring (April-May 2006) since harsh winter is almost setting in the snowline areas and a lot of preliminary work, like removal of debris and other hurdles, is yet to be completed," he added.

Dr Ashfaq said that the government had taken multi-layer steps to ensure transparency of expenses, including (a) use of hi-tech website, which would have all details of the project, funds, expenses, executing agency etc, (b) audit of expenses by Auditor-General of Pakistan and independent foreign auditing firms, (c) Committee of elders headed by Dr Ishrat Hussain, the out-going governor of State Bank of Pakistan, and (d) parliamentary committee and--most importantly--reporting of print and electronic media.

He said that the government is often asked the question that why, instead of taking loans, foreign exchange reserves were not being used for the reconstruction and rehabilitation projects. He pointed out that even the United States and oil rich Indonesia took foreign assistance and loans when these countries were hit by natural calamities. "Foreign exchange reserves are not meant for budgetary items, but serve as insurance to provide stability to a country's exchange rate and international credit ratings," he added.

Dr Ashfaq paid rich tributes to the statesman-like leadership and international stature of President Pervez Musharraf, which made the Donors' Conference more successful than expectations. "One has to accept the reality that in today's world, President Musharraf is not taken as a politician but a visionary statesman and a leader of exceptional qualities."

He said that the team of Prime Minister Shaukat Aziz had also worked very hard under the leadership of President Musharraf and did good homework to apprise the world about the extent of damage caused by the natural calamity and its well strategised reconstruction and rehabilitation plans which moved the world community to make generous contributions to help Pakistan.

Copyright Business Recorder, 2005


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