ISLAMABAD, March 27: Pakistan is likely to face a higher external debt-servicing burden as repayments of rescheduled non-ODA Paris Club stock resume in 2008 and some foreign currency bonds mature.

A sustained high current account deficit could also hurt the external debt-to-GDP ratio, which may start rising in the medium term, according to the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) report released here on Thursday.

In Pakistan, debt growth during the 1990s was unprecedented.

A credible debt reduction strategy and fast growth cut the public debt burden from 84 per cent of the GDP in 2000 to 57pc in 2006.

Pakistan reduced its external debt burden through rescheduling, a debt swap for social spending, debt cancellation and prepayment of expensive debt.

The debt service ratio has substantially declined in Pakistan over 2000-2006, though about 30 per cent of government revenues remain allocated to debt-servicing.

The report says if Pakistan follows its historical growth path, its debt-to-GDP ratio will continue to decline over the next five years. But an upsurge in the primary deficit would slow the reduction.

Because of a growing budget deficit, improvement in the ratio of domestic public debt-to-GDP since 2001 appears to have bottomed out.

In Pakistan, the share of the banking sector in domestic public debt is rising, and commercial banks are becoming major players. In the year 2007, the share of commercial banks reached 65 per cent, compared with 35 per cent for the central bank.

About the over-all economic performance of Pakistan, the report says the economy of Pakistan maintained its growth momentum in 2007, growing by seven per cent, slightly more than the 6.6 per cent for 2006.

Agricultural sector growth recovered sharply, from 1.6 per cent in 2006 to five per cent in 2007.

Manufacturing sector growth continued at 8.4 per cent in 2007, slightly more moderate than the 10 per cent for 2006.

Services grew at eight per cent in 2007, down from 9.6pc in 2006.

Exports were sluggish in 2007; economic growth was driven mainly by strong domestic demand. Investment overtook consumption, helped by a surge in domestic private investment and record FDI flows. In 2007, investment in real terms increased by more than 20 per cent.

Pakistan increased its development expenditure from about two per cent of the GDP in 2001 to about five per cent of the GDP in recent years, mainly after the government reduced its debt burden, partly due to external debt relief.

A further 20 per cent decrease in the debt service ratio could increase development spending by 24 per cent.

In India, the tax-to-GDP ratio of the central government hovers around 10pc. In Bangladesh, Nepal and Pakistan, tax-to-GDP ratios are also low, ranging from nine to 11 per cent without much improvement over time.

Inflation in the developing countries of Asia and the Pacific rose from a low of three per cent a year in the 60s to more than 10 per cent in the 70s and 12 per cent in the 80s and 90s. Rates have since come down to about six per cent, they remain high in Pakistan, Sri Lanka, the Lao People’s Democratic Republic, Samoa and Tonga.

The region’s five largest recipients of remittances in 2007 were India, China, the Philippines, Bangladesh and Pakistan, with remittances totalling $82bn in 2007.

South Asia’s strong aggregate economic growth rate of 7.4 per cent for 2007 was spearheaded by India, which grew by nine per cent and appears to be moving on to a new, high-growth phase as rates of investment in the economy rise sharply.

Bangladesh, Pakistan and Sri Lanka continued their growth momentum and grew by more than 6.5 per cent for the year.

North and Central Asia will continue to benefit from consumption and construction, thanks to high energy prices. South and South-West Asia, with traditionally domestic-demand-driven economies, will benefit from strong private consumption and investment and from expansionary fiscal policy in some

countries.