The Pakistan Story

How they reduced their public debt seems quiet impressive;

“Pakistan’s debt situation today stands in sharp contrast to the late 1990s and early 2000s, when both the overall and external debt ratios were very high. At the end of June-2001, Pakistan’s public debt peaked at almost 90 percent of GDP, slightly over half of which was external debt. In an environment of anemic growth, declining reserves, and a rapidly depreciating exchange rate, the Pakistani economy was under a great deal of pressure. However, in a turnaround, Pakistan’s recent history has been characterized by a sound policy environment and favorable exogenous factors. Accelerating economic growth, a sizeable pick up in remittances and exports, low real domestic and external interest rates have contributed to a sharp reduction in public debt.

A series of external developments and measures helped turn the debt dynamics around from late-2001. A Paris Club restructuring agreement in December 2001 allowed for a substantial easing of the external debt service burden, as did the simultaneous restructuring of $600 million in Eurobonds and $500 million in short-term credits held by commercial banks. Fiscal policy was tightened, and the primary surplus averaged over 2 percent of GDP between 2001/02 and 2003/04. Domestic interest rates gradually declined, allowing for a lowering of the government’s cost of borrowing at the margin. Accelerating economic activity and rising confidence in the economy created favorable conditions for the government to tap the external debt market in 2004. This made possible the retirement of existing high-interest external debt, financed by new, lower interest liabilities.”

- Public Debt and Fiscal Vulnerability in the Middle East, p.15, (Box 3. Pakistan—How Public Debt Was Reduced)