Tuesday, January 28, 2003
Govt decides to pre-pay $2.8 billion foreign debt
Our Economy Bureau in New Delhi Published : January 28, 2003
Emboldened by strong forex reserves of over $72 billion, the Centre has for the first time decided to pre-pay $2.8 billion of foreign debt.
India's total external debt stock as on date is about $98 billion with the government's debt alone accounting for around $48 billion.
In a press statement today, the finance ministry said the government would pre-pay an Asian Development Bank loan of $1,254 million and a World Bank loan of $1,549 million in the current fiscal through its forex reserves. It would be financed entirely through domestic market borrowings, the ministry said.
Senior finance ministry officials said the interest rate on the ADB loan was about 6.02 per cent a year while that on the World Bank loan was about 5.2 per cent.
A foreign exchange risk of about 5 per cent and commitment charges, however, increased the interest cost to over 7 per cent, they said.
Officials said the swapping of fixed-rate foreign currency debt with fixed-rate rupee debt would result in substantial savings to the government.
It was difficult to calculate the exact savings to the government over the residual maturity of the two loans of over 10 years, they said.
The Centre expected to pre-pay the $2.8 billion debt in the first fortnight of February. It will raise about Rs 13,000 crore from the domestic market for the purpose.
The timing of the issue of government securities would depend on market conditions and would be decided in consultation with the Reserve Bank of India, officials said.
According to officials, the extra borrowings would not add to the Centre's fiscal deficit, which is estimated at 5.3 per cent of the gross domestic product in the current fiscal.
"It will only add to the gross borrowings of the Centre and not to its net borrowings," an official said, adding that the government's total debt stock would remain the same.
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