EDITORIAL: During a recent parliamentary finance committee meeting the federal government revealed its intent to further amend the Fiscal Responsibility and Debt Limitation Act 2005 – a decision that may have been prompted by an unprecedented rise in government debt during the past three and one-quarter years — domestic debt rose from 16.5 trillion rupees to over 27 trillion rupees and foreign debt from 95 billion dollars to 127 billion dollars (which given the eroding rupee is on the rise in rupees terms with a consequent rise in budgeted debt servicing).
It is interesting to note that some analysts insist that the proposed amendment may be yet another prior condition of the International Monetary Fund (IMF) agreed by the government in the recently-concluded sixth review talks.
The devil as they say is in the detail and four details in the proposed bill are noteworthy. First, the name change from Debt Policy Coordination Board to Debt Management Office (DMO) envisages four directors, including a director general, who would report to Secretary Finance rather than the Finance Minister. This may be designed to allow for continuity given that the bureaucratic pool, by definition, has amassed much greater experience than a politically appointed Finance Minister and/or allow the latter deniability.
However, in our country, the Finance portfolio has been held, more often than not, by technocrats — Shaukat Aziz, Dr Hafeez Shaikh and Shaukat Tarin — who have not been too reticent in transferring finance secretaries that they inherit as well as those appointed by themselves who disagree or fail to follow instructions.
Second, the DMO will be charged with the preparation of annual debt review and an annual borrowing plan (to be published with budget documents) and preparing a comprehensive debt bulletin (debt stock, operations and sources of change in stock) on a semi-annual basis to be finalized with the approval of the Finance Secretary and published within three months of the close of each quarter. Given that the bulletin is to contain only available debt figures, it is unclear why three months would be given for the publication of the bulletin.
Debt stock would contain information on domestic government securities, bank loans or any other domestic borrowing instruments other than those issued by the Central Directorate of National Savings (CDNS) though guidelines would be formulated with prior approval of Secretary Finance for CDNS or any other agency engaged in government borrowing.
The budget does note all these elements; however, there is concern that the chicken and egg dilemma may face the renamed DMO unless it is given the power to play a role more than that of a post office or a book keeper. At present, the budget continues to understate the deficit through unrealistically high revenue projections and curtailment of development budget by the end of the year.
Third, coordinate with the external finance wing of the Finance Division and; record and analyse any debt raised for balance of payments. This too is recorded and is uploaded by the State Bank of Pakistan website though unfortunately the emphasis to date has been on the trade deficit (though remittance inflows have been used as a justification for the bulldozing of the recent electoral reforms that seeks to place the vote submitted by an overseas Pakistani in his home in Pakistan rather than allocating them seats separately as suggested by the Opposition) and the government borrowing component is ignored which it can but does not adjust.
And fourth, advise the Finance Division to evaluate requests for government guarantees (limit raised to 10 percent of GDP from 2 percent earlier this year to reportedly accommodate the projects under the China Pakistan Economic Corridor umbrella), custodian of all guarantees issued by the federal government in terms of recording and analysis and act as investor relations office of the Finance Division and finally responding to queries of the participants without disclosing confidential information (though what constitutes ‘confidential information’ is not defined).
While there is a need to document and analyse debt, especially in light of its massive rise during the tenure of the current government, a rise that makes a mockery of the narrative that debt is being incurred to pay off past loans, yet there is a danger that the recommendations/analysis of the new office like the old would not be binding on the Finance Division and the DMO would act as merely a post office or record keeper.
Copyright Business Recorder, 2021