ONE of the several changes proposed in the Fiscal Responsibility and Debt Limitation Act of 2005, seeking major relaxations in conditions under which the government may “depart from the principles of sound fiscal and debt management owing to unforeseen demands on its finances”, is seemingly in conflict with the very intent of the law. The 2017 version of the Act lets the government temporarily quit the path of fiscal discipline and debt reduction in case of unexpected needs arising out of national security reasons (terrorism, war, riots etc), projects of national importance and natural calamity (floods, earthquake, drought etc), or as determined by the National Assembly. The suggested changes, however, will give the government a free hand to move away from the path of fiscal and debt reduction and accumulate more debt to meet its needs if and when it deems it necessary.
The amendment to the Act has been proposed at a time when Pakistan’s total debt and liabilities have spiked by a whopping 70pc to Rs50.5tr. As the State Bank data for September shows, the public debt alone has grown to Rs41.5tr or 77pc of the nation’s GDP, far exceeding the limit of 60pc imposed by the law. The government has added Rs16.5tr to public debt so far as it has been borrowing heavily to meet its expenditure. The previous PML-N government had also violated the law as the debt-to-GDP ratio stood at 72.5pc at the end of its term in 2018.
Indeed, the other proposed amendments to the law, for instance, limiting the total stock of government guarantees at 10pc of GDP to fix the total debt and liabilities limit at 70pc of GDP, strengthening of and institutionalising debt management functions in a single office, publication of the Medium-Term National Macro-Fiscal Framework etc are some steps in the right direction. But using these amendments to thin out the debt-to-GDP limit is worrisome. The legislation was originally meant to reduce the revenue deficit to nil by June 2008 and thereafter maintain a revenue surplus, place the cap on total public debt, and slash the latter by not less than 2.5pc of GDP each year till 2013. Sadly, none of these objectives have been achieved because of the elite’s fiscal profligacy at the expense of the well-being of ordinary Pakistani citizens. The prime minister himself has termed the growing debt as a ‘national security issue’. If nothing else this should be reason enough for the government to implement the law, pursue policies for boosting tax revenues, cut unessential expenditures and slash debt. The growing burden of loans is a major reason for problems such as inflation, poverty, low literacy levels, poor healthcare and a widening current account deficit. The increasing costs of debt payments and expanding fiscal deficit cut into the state’s ability to invest in human capital at a great cost to its citizens.
Published in Dawn, December 7th, 2021