ISLAMABAD-The government on Friday admitted its failure for not reducing the debt-to-GDP ratio to 60 percent by end June 2019 as per Fiscal Responsibility and Debt Limitation Act, which rather has increased during the recent years.

“Total public debt and total debt of the government as percentage of GDP stood at 84.8 percent and 76.6 percent respectively at end June 2019, thus, increasing further during FY (fiscal year) 2018-19. Apart from fiscal deficit, unprecedented revaluation loss on account of currency depreciation and build-up of liquidity buffer contributed significantly toward the increase in debt-to-GDP ratio during FY 2018-19,” the ministry of finance stated in Debt Policy Statement 2019-20. The ministry has also released Fiscal Policy Statement 2019-20. The federal government has to lay the Debt Policy Statement and Fiscal Policy Statement before the National Assembly by the end of January each year.

The government has also failed to reduce the budget deficit at 4 percent of the GDP. The FRDL Act, 2005 requires that the federal government take measures to reduce federal fiscal deficit to four percent of gross domestic product during the three years, beginning from the financial year 2018-19. The federal fiscal deficit (excluding grants) was recorded at Rs 3,635 billion or 9.4 percent of GDP during FY 2018-19, thus, remaining higher than the threshold of 4 percent.

The report revealed that Pakistan’s total public debt and liabilities were recorded at Rs41,489 billion (94.3 percent of the GDP) by the end of September 2019. The country’s total public debt has reached Rs 34,241 billion at end September 2019 registering an increase of Rs 1,533 billion during first quarter of current fiscal year. Domestic debt registered an increase of Rs 1,918 billion during first quarter of FY 2019-20 while government borrowing for financing of federal fiscal deficit from domestic sources was only Rs 308 billion during the said period. Meanwhile, External Debt Liabilities (EDL) was recorded at US$ 106.3 billion by end June 2019, registering an increase of US$ 11.1 billion compared to an increase of US$ 11.8 billion recorded a year earlier.

The federal government has vowed to reduce the debt to GDP in next five years. Beginning from the financial year 2018-19 total public debt shall be reduced by 0.5 percent every year and from 2023-24 and going up to financial year 2032-33 a reduction of 0.75 percent every year to reduce the total public debt to fifty percent of the estimated gross domestic product and thereafter maintaining it to fifty percent or less of the estimated gross domestic product.

Meanwhile, the government said that no new guarantees would be issued for 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 two percent of the estimated gross domestic product in any financial year: Provided that the renewal of existing guarantees shall be considered as issuing a new guarantee.

Government is committed to achieve the targets outlined in Fiscal Responsibility and Debt Limitation Act, 2005. Going forward, the government said following are the main priorities with respect to public debt management over the medium term: government objective is to bring and maintain its Public Debt-to-GDP and Debt Service-to-Revenue ratios to sustainable levels through a combination of greater revenue mobilization, rationalization of current expenditure and efficient/productive utilization of debt. For domestic debt market development, the government is planning to introduce various new instruments with the objective to meet government financing requirements at the lowest possible cost while providing additional avenue to investor in-line with their investment horizon and risk appetite / preference. Government intends to broaden the universe of Shariah compliant securities (domestic as well as international). Lengthening of maturity profile of domestic debt through enhanced mobilization from medium to long term government securities will remain priority to reduce the re-financing and interest rate risks of domestic debt portfolio. Government will continue to seek long term concessional loans for development purposes.

Meanwhile, the government is also taking necessary steps for ensuring fiscal discipline and consolidation, stabilizing the economy and accelerating growth. Accordingly, the government has started revamping the economy through structural reforms and stabilization measures such as broadening the tax base, reforming the Public Sector Enterprises (PSEs) and reducing the fiscal deficit, while ensuring that social safety net and development spending are not only protected but enhanced considerably. All these measures are expected to bring stability leading to gradual reduction in the fiscal deficit over next few years and subsequently would reduce the country’s reliance on additional debt.