ISLAMABAD, July 23: The Finance Minister on Tuesday said considerable progress had been made over the last two years in bringing the fiscal deficit to a sustainable path.

He was addressing a seminar on draft fiscal responsibility and debt limitation law. The seminar, organized by the Pakistan Institute of Development Economics (PIDE), was presided over by the minister.

A rule-based fiscal policy envisaged through the proposed law, he asserted, would encourage “responsible and accountable fiscal management by the government” and require it to be transparent about its short-and long-term fiscal intentions, besides imposing high standards of fiscal disclosure.

Dr A.R. Kemal, Executive Director of PIDE, in his address of welcome, said it was imperative that the proposed law be discussed before its implementation.

He underlined three main areas of discussion on the draft law, namely, (1) Are the targets fixed by it realistic? (2) Are all these targets internally consistent? and (3) if it is promulgated, how would it be implemented and what its consequences be?

Finance Ministry advisers Dr Tariq Hassan and Dr Ashfaque H. Khan, said the proposed law, when promulgated, would apply to the whole of Pakistan. They described its broad objectives as medium and long term stability in macro-economic indicators.

According to draft law, the government will be bound to eliminate revenue deficit by June 30, 2007 and reduce public debt to 60 per cent of GDP by the year 2012.

In the event of failure to meet the target of debt to GDP over a period of two years, the proposed law will require the government, among other measures, to suspend salaries of Cabinet members.

The draft law would be posted on the Ministry of Finance website and comments solicited thereon from the public before its finalisation.

The draft is the outcome of a policy commitment the Finance Minister had made in his budget speech 2001-02 in order to limit the government’s ability to accumulate debt which had mounted to 100 per cent of GDP in 2000.

Following the speech, he had constituted a committee comprising, among others, the Finance Ministry’s Advisers Dr Tariq Hassan and Dr Ashfaq Hasan Khan.

According to details described at the PIDE seminar on Tuesday, following are other principles of the proposed law:

* To reduce the total public debt by not less than 2.5 per cent of the GDP in every financial year, provided that the social and poverty related expenditures are not reduced below 4 per cent of the GDP; and

* not to issue new guarantees, including those on rupee lending, bonds, rates of return, output purchase agreements and all other claims and commitments that may be prescribed from time to time for any amount exceeding 2 per cent of the GDP.

The government, it is stipulated, can depart from these principles on grounds of unforeseen demand due to national security or natural calamity that would, however, have to be determined by the National Assembly.

In order to maintain transparency in its policies and actions, the federal government would lay before the National Assembly in each financial year the following five economic policy statements:

a. Medium-term Budgetary Statement included in the Annual Budget Statement (ABS);

b. Annual Fiscal Policy Statement included in the ABS;

c. Annual Debt Policy Statement included in the ABS;

d. Mid-year Economic Report by the end of February; and

e. Annual State of the Economy Report by the end of June.

The Economic Policy Statements, the draft law proposes, shall incorporate to the fullest extent possible all government decisions that have a material effect on the economic situation of the country. It, however, empowers the Finance Minister to exclude from these statements certain decisions, thus practically curtailing the National Assembly’s authority to consider these statements.

The draft law also proposes the establishment of a Debt Policy Coordination Office (DPCO), which will serve as a Secretariat to achieve the objectives of the Fiscal Responsibility and Debt Limitation law. It would prepare a 10-year debt reduction path which would be followed by the government and against which its performance would be monitored and analysed by the DPCO.

The DPCO shall submit its annual reports to the Cabinet after the approval of the Finance Minister.