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ECC approves signing of MoU for G20 debt relief


May 21, 2020

ISLAMABAD: Government on Wednesday allowed economic affairs division to sign a memorandum of understanding (MoU) to avail the one-year debt payment moratorium announced by the G20 grouping under COVID-19 support to poor economies.

“Subject to the approval of the cabinet, ECC approved in principal to allow EAD to sign an MOU for availing the G20 relief initiative,” a statement said. “Pakistan is required to enter into this MoU with all official bilateral creditors, including Paris Club creditors to implement the debt relief initiative of G20.” ECC of the cabinet took the decision and approved Rs10 billion for payment of interest on Pakistan Energy Sukuk-II (PES-II) during a meeting presided over by the finance adviser.

“Pakistan has no intension of seeking any kind of relief for repayment of its commercial loans / borrowings,” Shaikh was quoted as saying in the statement. “Pakistan has the means and will to honour its commercial commitments.”

The group of 20 leading economies and the Paris Club – a group of state creditors – agreed last month to freeze the debt payments of the 77 poorest countries this year to free up cash for them to fight the coronavirus pandemic.

Since private creditors also agreed to suspend debt payments in parallel with the Club, ratings agencies warned that the moratorium would be considered a default and hence having downgrade risks.

Moody’s put Pakistan’s B3 rating on downgrade review to assess if debt relief entails any kind of default on the country’s loans from commercial lenders. Usually the Paris Club asks borrowing governments to seek the same debt repayment conditions from private sector creditors. Now, the rules have been exempted. Reuters reported that the Paris Club is expected to soon sign debt moratorium deals with at least 20 poor economies, including Pakistan.

Countries eligible for the program have a combined $36 billion falling due this year, composed of $13 billion owed to other governments, $9 billion to private creditors and the rest to multilateral development lenders. Pakistan is expecting a freeze on loan repayments of $1.8 billion, less than two percent of its total foreign debts.

The Paris Club signed off on debt waivers for four nations, including Mali and Nepal, with six further moratorium deals likely in the coming days with larger economies. “The countries likely to sign off shortly include Cameroon, the Democratic Republic of Congo, the Republic of Congo, Ethiopia, Pakistan and Mauritania,” said a source.

ECC allocated of Rs10 billion from stimulus package as a stop gap arrangement for the payment of interest on the PES-II – listed in low interest rate scenario on Tuesday – for a period of six months or amendment in National Electric Power Regulatory Authority Act, whichever is earlier.

The committee approved the terms of reference for negotiations with independent power producers / generation companies as recommended by a committee constituted by the cabinet committee on energy last month, to reduce the capacity charges of power generation companies through synthetic financing. ECC constituted a committee to devise a comprehensive policy to incentivise smart phone manufacturing in Pakistan. The committee would bring its proposals after consultation with all the relevant stakeholders in due course.

The committee also approved technical supplementary grants, including Rs360.5 million for the repair and maintenance of Supreme Court buildings across the country, Rs3.8 billion for housing ministry’s schemes in Sindh, Rs291 million for payment of salary of maintenance staff of Public Works Department. ECC approved the constitution of the policy committee to manage and operate the COVID-19 relief fund. The policy committee would decide on the appropriate usage of the proceeds deposited in the fund, including means of identification of the beneficiaries of the fund and the parameters of their selection.