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November 27, 2011

‘Pakistan’s debt servicing equals to Greece’


November 27, 2011

LAHORE: Pakistan government is paying the same interest on it $80 billion domestic debt that Greece has to pay on its $324 billion debt because of higher interest rates, said group leader All Pakistan Textile Mills Association Gohar Ejaz in a meeting.
Apprising his group about the severity of high interest rates, he said Greece, the 37th largest economy in the world, and Italy, the 6th largest, cannot service their debt at very low mark up. “How can we expect to survive such high interest rates?”
The group met to discuss the steep decline in textile exports in October.
Elaborating his point, he said Pakistan’s Rs7 trillion domestic debt is equal to $80 billion. He said the government is paying on average 11 percent interest on this debt, which comes to around $9 billion or Rs780 billion. He said the sovereign debt of Greece is $324 billion and it has to service it at a mark up of three percent only. He said the debt servicing amount of Greece comes to a little over $9.5 billion.
In other words, due to high mark up the impact of servicing of $80 billion domestic debt of Pakistan is the same as that of over four times higher debt of Greece, he claimed.
“When a strong economy cannot pay this amount in debt servicing, how can we expect Pakistan to grow at such high interest rate regime?”
Leading spinner S M Tanveer said that the basic role of all central banks is to ensure sustainable growth with creation of jobs.
He said the central bank of the United States has maintained zero or near zero interest rate to induce growth.
He said this did not lead to inflation in the US as it stands at two percent.
Ejaz said that inflation in Pakistan is driven by high costs of production.
An APTMA member Shahzad Ali Khan said that the investments have totally stopped during four years of high interest regime.
He said due to high interest rates the investors prefer to park their money in banks and other financial institution to

ensure guaranteed return of 12 percent. On the other hand whatever is earned in businesses is consumed by debt servicing, he claimed.
The textile entrepreneurs pleaded with the government and the central bank to bring down the interest rates by 3-4 percent to give a jump start to growth and investment.
They warned that Pakistan would be left out of main textile markets if fresh investments in the sector were not facilitated.

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