Total liability crosses Rs15tr: Govt admits breaching debt limits
ISLAMABAD, Feb 4: With Pakistan’s total debt and liabilities now in excess of Rs15 trillion, the government on Monday conceded to have breached major limits imposed by the parliament under the Fiscal Responsibility and Debt Limitation Act 2005 to check and bring down increasing debt levels deemed vulnerable to the nation’s sovereignty.
The two separate policy statements — Fiscal Policy Statement and Debt Policy Statement 2012-13 — released by the ministry of finance on Monday said the three major requirements were violated during last financial year ending on June 30, 2012 owing to fiscal profligacy arising out of higher subsidies, lower revenues, drying up of external program loans and currency devaluations.
The government also conceded that some of the requirements of the law continued to be violated every year consecutively since the current government came into power in 2008. Under the Fiscal Responsibility and Debt Limitation Act (FDRLA) 2005, the government is required to submit annual reports to the parliament on debt and fiscal situation.
The first key requirement of the law ‘to reduce the revenue deficit to nil not later than June 2008 and thereafter maintaining a revenue surplus’ remained total failure to begin with and throughout the last five years.
“Revenue balance has been in negative since 2006 because of increasing exogenous and endogenous challenges”, said the two policy statements of the finance ministry.
The reports indicated the revenue deficit stood at 3.2 per cent of GDP in 2008, declined to 1.2 per cent in 2009, increased to 1.7 per cent in 2010, jumped to 3.3 per cent in 2011 and stood at 2.5 per cent of GDP at the end of fiscal year 2012.
The second most important condition to limit total public debt below 60 per cent of GDP and then maintaining it at this limit every year also could not be fulfilled.
“The government consolidated Rs391 billion or 1.9 per cent into public debt in 2011-12 against outstanding previous years subsidies related to food and energy sectors due to which public debt to GDP stood at 61.3 per cent of GDP at end June 2012”.
The third key milestone required reducing total public debt by no less than two and a half per cent of GDP every year for 10 years — 2003 to 2013 — provided poverty alleviation related expenditures did not fall below 4.5 per cent of GDP and doubling health and education related expenditures as percentage of GDP.
The policy statements, however, admit that reducing debt by 2.5 per cent every year remained a pipedream throughout the 10 year period including fiscal year 2011-12.
The statements said total debt to GDP ratio stood at 59 per cent in 2008, increasing to 60 per cent in 2009 and 2010 and then dropping slightly to 59.3 per cent in 2011 and finally increased again to 61.3 per cent in 2011-12.
The government also failed to double allocations for health and education throughout its five year tenure. The allocations for education as percentage of GDP stood stagnant at or around 1.8 per cent in four years and slightly increased to 2.1 per cent in fiscal year 2011-12. Likewise, the allocations for health also kept on fluctuation between 0.6 and 0.8 per cent of GDP in all five years — 2008 to 2012.
It was, however, able to maintain social sector and poverty related expenditures in excess of 6 per cent, although it dropped from 9.3 per cent in 2008 to 6.7 per cent and 6 per cent in 2010 and 2011 and then 8.2 per cent in 2012.
The finance ministry said the composition of public debt witnessed major changes over the past few years with increasing reliance on domestic debt owing to lower external debt flows. “The composition of major components shaping the domestic debt portfolio has itself undergone a transformation from a high dominance of unfunded debt to an increasing dependence on short term floating debt which is a source of vulnerability as it entails high rollover and refinancing risk”.
In such cases, an increase in interest rates has an adverse fiscal impact. On an average, 66 per cent of total increase in external debt was caused by the unfavourable movement of exchange rates since 2007-08.
The government said the total public debt stood at Rs12.667 trillion as on June 30, 2012, showing an increase of Rs1.967 trillion or 18.4 per cent higher than debt stock at the end of last fiscal year. This was mainly because of slippages in both revenues and expenditures that led to fiscal deficit at 6.6 per cent of GDP excluding 1.9 per cent of one-time debt consolidation.
The reports said the interest servicing, security and subsidies constituted 60.9 per cent of the revenue as expenditures were fairly rigid.
“The external debt component grew by Rs345 billion or 7.4 per cent over the last fiscal year” even though appreciation of US dollar against other major currencies caused the foreign currency component of public debt to decrease by $1.740bn. This was, however, subdued by depreciation of rupee against dollar by almost 10 per cent.