Anvil Act to Stop Growing Debt Burden – Journal


ISLAMABAD: Against the background of an increase of about 70% in the country’s total public debt and liabilities over the past three years, a government bill amending the 2005 law on fiscal responsibility and limitation of debt aims to limit the stock of public guarantees to 10% of GDP. and strengthen the public debt office to plan the acquisition of debts and liabilities, but with a downgrade of reporting.

This is part of a government bill – the Fiscal Responsibility and Debt Limitation (Amendment) Act of 2021 – which was discussed by the Standing Committee on Finance and Revenue of the National Assembly. last week, but was postponed due to lack of time.

The proposed law generally seeks to achieve three key objectives: limiting the stock of public guarantees to 10% of GDP; publish a National Medium-Term Macro-Fiscal Framework (CMTFF); and institutionalize debt management functions in a single office reporting to the finance secretary instead of the finance minister.

Seeks to downgrade debt office reporting to minister’s finance secretary

The 2021 bill aims to increase the number of directors of the Debt Policy Coordination Office (DPCO) from three to four and change its nomenclature to the Debt Management Office (DMO).

The DPCO had three directors – two from the private sector and one from the public sector – and one of them was chosen as managing director. The new DMO would have a managing director and three directors who would be hired through a “private or public sector competitive process”.

The DMO would have increased powers to plan a “debt reduction path”, raise additional loans and conduct loan negotiations with international lenders in consultation with the Ministry of Economic Affairs.

However, the DMO or Debt Office would report administratively to the Secretary of Finance under the new arrangements instead of to the Minister of Finance under the existing agreement.

In some areas, the debt office would take over the responsibilities of the external finance wing of the finance ministry, as required by a World Bank loan to “consolidate debt management functions into a single management office.” professionally managed and adequately resourced debt management ”.

It comes at a time when Pakistan’s total debt and liabilities exceeded Rs 50.48 trillion at the end of September 2021, up 69 pc (or Rs 20.7 tr) from Rs 29.88 trillion at as of the end of June 2018, according to the State Bank of Pakistan (SBP). This represents 93.7 pc of GDP against 86.3 pc in July 2018.

The State Bank also reported a total public debt of 41,470 billion rupees as of September 30, 2021 against 24.95 trs at the end of June 2018, an increase of 16.52 trs (over 66 pc ) in about 39 months. Total public debt now stands at 77% of GDP, up from 66.5% in July 2018.

Interestingly, the bill seeks to have an upper limit on total public debt and guarantees at 70pc of GDP with the addition of a limit of 10pc on the stock of guarantees. There is no change in the upper limit for the stock of public debt at 60pc of GDP as foreseen in the law of 2005.

The ban on the government issuing new guarantees or renewing existing guarantees up to a maximum of 2% of GDP during a fiscal year remains unchanged, but the proposed amendment adds the following qualification and explanation : not to exceed 10pc of the estimated GDP.

Its explanation reads as follows: “For the purposes of this clause, each guarantee will be valued at its risk-weighted value in accordance with a valuation methodology to be prescribed. “

The bill seeks to ease the barriers that allow the federal government to deviate from the principles of sound budget and debt management due to unforeseen demands due to “national security or a natural calamity as determined by the National Assembly “.

Instead, the bill seeks to omit the words “national security and natural calamity” and allows any unforeseen demand on the budget to result in a deviation from the budget path and debt reduction that needs to be assessed. by the National Assembly.

A proposed new clause also required the Ministry of Finance to prepare an MTMFF covering overall budget projections, in particular the income, expenditure and primary balances for the coming fiscal year and the last two years of the federal and provincial governments and other parts of the country.

This would be presented to the monitoring committee of the National Finance Commission before March 15 of each year. The CFRMT is to be published in the budget strategy papers and annual budget statements of federal, provincial and other governments as part of their budget documents.

The current law allows a three-year term for the CEO and directors, extendable for another term, while the new law allows three terms of three years each, but multiple terms could be granted, but not consecutively.

The current law requires the removal of the CEO and other directors through an investigation by the Federal Civil Service Commission if found guilty, but the bill calls for their removal by the federal government through an investigation carried out in accordance with the prescribed procedures or on the performance appraisal by a committee chaired by the Minister or the Secretary of Finance.

The DMO would have the power to maintain a coherent and authenticated register of public debt and government guarantees without prejudice to the specific responsibilities of the SBP, the Economic Affairs Division, the budget and external finance wings of the Ministry of Finance or the Ministry of Finance. national savings as is currently the case, but obtain additional powers to outsource the record keeping of these functions through service level agreements.

The DMO also has the additional responsibility of preparing by law for the annual debt review as well as progress against the MTMFF in accordance with government policies with the prior approval of the Secretary of Finance.

It would prepare an annual borrowing plan with the support of relevant stakeholders, increase domestic debt through national government securities, bank loans or any other instrument except the Central Directorate of National Savings (CDNS).

The DMO would also formulate a process and increase domestic debt through public auctions and issue guidelines to the CDNS for domestic borrowing with the approval of the finance secretary.

In addition, it would also increase external debt through trade bonds, banks or other instruments and provide advice to the Economic Affairs Division to obtain external loans from multilateral and bilateral lenders.

Previously, many of these functions were held by the budget and external finance branches of the Ministry of Finance.

Posted in Dawn, December 6, 2021


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