ISLAMABAD, Sept 18: The government has finalized the draft Fiscal Responsibility Law, which aims at eliminating the entire revenue deficit (approximately Rs 125 billion) by June 30, 2007 and to reduce the outstanding public debt (approximately Rs1500 billion) to 60 per cent of GDP by June 30, 2012.
According to official sources, the ordinance would be promulgated immediately after the cabinet approval, which would give its assent within this month. The draft law was to be enacted by August 31, 2002, but delayed due to government’s preoccupation with political matters including the holding of general elections.
The draft law finalized by the Ministry of Finance is now being sent to the Ministry of Law, Justice and Parliamentary Affairs for necessary vetting within this week. The government has accepted and incorporated in the draft law some of the proposals given by the private sector experts and professionals to make this law more effective.
The sources said it had been decided to withdraw the provision of suspending the salaries of the cabinet members in case any government crosses prescribed limit for spending.
The draft law also 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 4 per cent of the GDP. It also requires the government not to issue guarantees, including those on rupee borrowing by public sector enterprises, minimum rates of return, output purchase agreements, and other claims and comments for any amount exceeding 2 per cent of GDP.
According to the draft, the government can deviate from various targets only on grounds of unforeseen demand on its resources due to national security or national calamity, which would be determined by the National Assembly.
The draft law provides for the establishment of a Debt Policy Coordination Office (DPCO), that would serve as Secretariat in the Ministry of Finance, and prepare a 10-year debt reduction path to be followed by the government.
The DPCO will be responsible for monitoring and analysing the performance of the government, and would submit annual reports to the cabinet.
If the government fails to meet the target of debt-to-GDP ratios over two years period, it would be required to take all necessary actions to return to the debt reduction path delineated by the DPCO by the end of next two years.
The sources said that Economic Adviser of the Ministry of Finance Dr. Ashfaque Hasan Khan is being appointed as the head of the DPCO. Instead of promoting Dr. Khan in Grade 22 as was earlier being considered, a decision has been taken to offer him M-1 package which is considered fairly adequate. As long as the new economic adviser is not appointed, he will handle both the assignments.
According to the draft law, Article 166 of the Constitution empowers the federal government to borrow for financing its budgetary expenditures within such limits as the Parliament may fix from time to time. The Parliament never enacted a law to prescribe these limits. As a result, successive governments demonstrated complete lack of fiscal responsibility, particularly during the 1980s and 1990s. With the result the outstanding public debt increased from 66 per cent of the GDP in 1980 to 102 per cent in 1999, the level at which it was unsustainable.