§ 3.12 p.m.
§ The Earl of Northesk asked Her Majesty's Government:
§ Whether, as a member of the Paris Club, they will encourage the Government of Pakistan not to default on their public debt.
§ Lord McIntosh of HaringeyMy Lords, Her Majesty's Government encourage other governments to meet their financial and contractual obligations. Pakistan's IMF programme envisaged that it would need to seek debt relief from all its creditors. In its agreement with Paris Club creditors, the Government of the Islamic Republic of Pakistan agreed to seek comparable treatment from all their other official bilateral, commercial and private creditors.
§ The Earl of NortheskMy Lords, I thank the Minister for that Answer. Does he accept that an essentially Washington-inspired insistence that Pakistan should default on its debt, particularly in Eurobonds, could give rise to a disastrous political instability in an already tense part of the world? Does the Minister also accept that such a move would set a dangerous precedent, the economic consequences of which would have severe repercussions for developing countries generally?
§ Lord McIntosh of HaringeyMy Lords, I do not accept the noble Earl's premise for either of those questions. It is not a Washington-inspired commitment. The IMF meeting on 14th January this year and the Paris 540 Club meeting on 30th January recorded what I quoted in my first Answer; that the Government of Pakistan agreed to seek comparable treatment from all their other official bilateral, commercial and private creditors.
§ Baroness Williams of CrosbyMy Lords, does the Minister agree that the situation of Pakistan has worsened in the past two months, with approximately one third of its total reserves leaving the country and with a sharp fall in the amount of inflow of capital into the country? Given the possible repercussions of the destabilisation of Pakistan, will the Minister consider whether the Paris Club might look again at the prospect of rescheduling Pakistan's debts so as to encourage the upholding of civil authority and a more moderate government of the kind we have at present?
§ Lord McIntosh of HaringeyMy Lords, the decision of the Paris Club on 30th January involved a substantial contribution from its members towards the economy of Pakistan; and the reorganisation of the external debt of Pakistan resulting from loans and guaranteed credits extended by participating creditor countries. The amount of debt then involved—I do not have up-to-date figures—was approximately 3.3 billion dollars. I accept what the noble Baroness says about the situation worsening and I have no doubt that the Paris Club is keeping that under consideration.
§ Lord AhmedMy Lords, is my noble friend the Minister aware that, according to the UN human development report, more than 40 million Pakistanis live below the poverty line, earning less than £1 a day? Therefore, will Her Majesty's Government support a debt relief scheme for Pakistan?
§ Lord McIntosh of HaringeyMy Lords, we are well aware of the economic problems in Pakistan, which is why earlier this year the IMF set out macro-economic objectives for the next three years. They involve a recovery in GDP growth; a reduction in annual inflation; a reduction of the external current account deficit; stabilisation of total public-sector debt to GDP ratio; and an improvement in social indicators. The issue of debt relief, other than the restructuring I have described, goes wider than that in the Question on the Order Paper.
§ Viscount WaverleyMy Lords, notwithstanding the recent rating increase from CCC to CC, how is the state of Pakistan reasonably expected to service a public debt of 43 billion US dollars with reserves of 1 billion US dollars, an average annual income of 400 dollars, and only 1.3 per cent of the people actually paying taxes?
§ Lord McIntosh of HaringeyMy Lords, I am not in a position to comment on the noble Viscount's detailed figures. The restructuring of the debt is precisely the way in which the IMF and the Paris Club see the way 541 forward. It is recognised that in its present economic condition, Pakistan is not capable of servicing the debt without some restructuring.
§ Lord CheshamMy Lords, does the Minister believe that government or multi-national body interference in private-sector lending to governments will help the Eurobond market in London?
§ Lord McIntosh of HaringeyMy Lords, I do not accept the premise of that question either. The noble Lord implies that it is this Government or governments of the Paris Club which have invited Pakistan to default on its Eurobonds debt. That is not the case. In contrast, the Government of Pakistan have agreed to treat all chair debts, both sovereign loans and commercial debts, on the same basis.