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| April 17, 2003 | Thursday | Safar 14, 1424 |
Draft fiscal responsibility law submitted for approval
ISLAMABAD, April 16: The government will submit to parliament the draft of a Fiscal Responsibility Law by June 1 this year seeking to eliminate the entire revenue deficit of Rs125 billion by June 30, 2007, and to reduce the outstanding public debt of Rs1,500 billion to 60 per cent of GDP by June 30, 2012.
Official sources told Dawn here on Tuesday the draft law has been sent to the cabinet division to be presented to the federal cabinet for final approval within this month.
The law was to be enacted by August 31, 2002, but was delayed due to the then government’s preoccupation with political matters, including the holding of general election.
Sources said it has been decided to withdraw the provision of suspending the salaries of cabinet members in case any government overspends against certain prescribed limits.
The draft law seeks to reduce the outstanding public debt by at least 2.5 per cent of GDP every fiscal year, while ensuring that social and poverty related expenditures are not reduced below four per cent of GDP.
It also requires the government not to issue guarantees, including those on Rupee borrowing by public sector enterprizes, minimum rates of return, output purchase agreements, and other claims and comments for any amount exceeding two per cent of GDP.
“We should understand that there is a general consensus that prolonged commitment to fiscal discipline can only come from a rule-based fiscal policy for which the fiscal responsibility law needs to be approved and adopted by parliament,” said Dr Ashfaque Hasan Khan, Economic Adviser to the Ministry of Finance and Director-General Debt Policy Coordination Office (DEPCO).
According to the draft, the government can deviate from various targets only on grounds of unforeseen demands on its resources due to national security or a national calamity, which will be determined by the National Assembly.
Article 166 of the Constitution empowers the federal government to borrow to finance its budgetary expenditure within such limits as parliament may fix from time to time.
Parliament has not enacted a law to prescribe these limits so far, with the result that the outstanding public debt increased from 66 per cent of GDP in 1980 to 102 per cent in 1999, at which level it was unsustainable.
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