Spokesman of the Finance Division has categorically rejected a report carried by a
section of media, "Dar’s Legacy: a heavily-indebted Pakistan".
The spokesman offering his comment on the report said that in
the past four years of the present government has seen tremendous economic
growth whereby the size of the economy grew from USD 225 billion in 2013 to USD
304 billion in 2017 thus constituting an aggregate growth of 35 percent during
the said period. This was only made possible by the prudent policies of the
government that included historically low domestic interest rates, a prolonged
and sustained period of low inflation and price stability, significant surge in
private sector credit, huge increase in PSDP spending and above all an
effective monetary policy coupled with a judicious fiscal policy that saw the
budget deficit come down from 8.2 % in 2013 to 5.8% in 2017. Despite all these
positive development some detractors have made it a habit to cherry pick the
selective numbers and present them in isolation without giving the reader a
proper perspective and a complete picture of the economy.
The report said that the Pakistan’s total debt and liabilities
increased to Rs. 25.1 trillion. It further stated that total external debt and
liabilities has increased to roughly $83 billion by end of fiscal year 2016-17
and a sum of $8.2 billion was spent on external debt servicing. The report
unduly criticized the changes made in Fiscal Responsibility and Debt Limitation
Act, 2005. The report has portrayed a negative picture of the economy by
analyzing the debt in isolation and completely ignoring positive developments
witnessed during the past few years.
The spokesman said that firstly, the writer has used
exaggerated numbers which create doubts and mislead the general public. Some of
these are highlighted as follows:
I.
Total debt of the government stood at Rs.19.6 trillion at end
June 2017 as opposed to Rs.25.1 trillion as mentioned in the news report.
Further, the debt burden is better understood in comparison to its relation
with the GDP instead of absolute debt numbers. Another way to gauge the
increase in public debt burden of the country is to compare that with relevant
global debt statistics. In this regard, Pakistan witnessed a marginal increase
of 1.4 percent (from 60.2 percent in 2013 to 61.6 percent in 2017) in its total
debt to GDP ratio during last four years while during the same period global debt
to GDP ratio increased by about 8 percent (Source IMF World Economic Outlook).
II.
Similarly, external public debt stood at US$ 62.5 billion while
news report reported total external debt and liabilities number amounting US$
82.7 billion at end June 2017 to sensationalize the issue. The rationale of
using external public debt instead of external debt and liabilities has been
clarified at many forums. Total External Debt and Liabilities include the debt
of other sectors (private sector, bank borrowing)which are not part of public
debt since the government is not liable to pay these obligations. External
public debt increased from US$ 48.1 billion to US$ 62.5 billion i.e. by US$
14.4 billion while non-public debt rose by US$ 7.3 billion.
III. Therefore,
It is incorrect to assume that debt per capita is Rs.120,381.
The
spokesman said the news report made a false claim that the government has made
amendments in the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005 to
conceal the worsening debt picture. In fact, most of the clauses of FRDL Act
were outdated and the present government not only updated the clauses in
accordance with the present economic realities but also defined path with an
objective to improve the fiscal and debt situation of the country along with
formalizing the definition of public debt. It is important to note that these
amendments were made regardless of the tenure of any political government to
clearly define a debt reduction path. Accordingly, the gross public debt
numbers are consistent and unchanged as reported in the government publications
in the past. Further, the total debt numbers are consistent with international
reporting standards i.e. “IMF Public Sector Debt Statistics Guide for Compilers
and Users (2013)”. Such narration only intends to mislead the public regarding
public debt data integrity based on lack of understanding of the public debt
management, disregarding the Fiscal Responsibility and Debt Limitation Act
approved by the parliament.
The
news report incorrectly stated that the government is in violation of the
original limit of 60 percent of Debt to GDP set under the Fiscal Responsibility
and Debt Limitation Act passed by parliament in 2005. It is to clarify that the
limit of 60 percent of Debt to GDP will be applicable by end June 2018 as per
the Fiscal Responsibility and Debt Limitation Act. Therefore government is not
presently in violation of this threshold of FRDLA. Furthermore the government,
with an aim to improve debt sustainability, has introduced a 15 year debt
reduction path whereby starting from 2018/19 the public debt to GDP ratio
shall be brought down from 60% to 50% by end 2032/33.
Tthe
news report clearly ignores that Pakistan’s economic indicators are performing
well which has been acknowledged internationally and led to an improvement in
country’s credit rating.
Some
of the key economic highlights are as follows.
GDP
Growth: The pace of expansion in the economy accelerated for the
fourth consecutive year in FY2017 amid improving security situation and energy
supply. The real GDP growth in FY2017 reached a decade high of 5.3 percent.
This broad based growth was on account of remarkable performance of
agriculture, industry and services along with pro-growth supportive policies of
the government.
LSM
Growth: Long Term Finance Facility
(LTFF) has been reduced from 11.4 percent to 6.0 percent which is encouraging
the economic activities in LSM sector. The LSM recorded a growth of 5.6 percent
in FY2017. This growth momentum continues in FY2018 as it recorded a phenomenal
growth of 12.98 percent in July, FY2018 compared to 1.72 percent in the
corresponding period last year.
Private
Sector Credit: The flows of credit to private sector
has seen historic expansion of Rs.747.9 billion in FY 2017 compared to a
decline of Rs.7.6 billion in FY 2013. The robust lending is a reflection of
favorable supply as well as demand conditions in the economy. On the supply
side, the most helpful factor was a healthy deposit growth, which significantly
improved the liquidity of the banking system and on demand side, low financing cost encouraged private businesses alongwith an
added impetus from CPEC related activities and higher PSDP expenditures which
triggered the demand for fixed investment loan by private businesses.
Improved
Business Sentiment: The overall improvement
in business sentiment along with supportive policies (historic low interest
rate, high infrastructure spending and better law and order) has encouraged a
number of firms to pursue expansion plans. Likewise, lowest policy rate has
also provided a significant support to industrial sector.
Inflation: FY2017
marked the third consecutive year when the headline CPI inflation remained
lower than the annual target. The general trend was nonetheless increasing:
after reaching the multi-decade low level of 2.9 percent during FY2016. During
July-August FY2018, CPI inflation increased by 3.16 percent compared to 3.84
percent in the comparable period of last year. The current trend of inflation
suggests that it will remain well below the target of 6.0 percent during
FY2018.
Fiscal
Consolidation: Fiscal sector of the economy has
witnessed a notable improvement on account of contained expenditures and
increased revenues. Consolidation efforts are on track since government has
successfully curtailed the fiscal deficit at 5.8 percent of GDP in FY 2017 from
8.2 percent of GDP in FY 2013.
Tax
Collection: The overall tax-GDP ratio has reached
to 12.5 percent in FY 2017 as compared to 9.8 percent in FY2013. FBR Tax
collection increased from Rs.1,946 billion in FY2013 to Rs.3,361.0 billion in
FY 2017, registering an overall growth of around 73 percent. During July-August
FY2018, FBR tax collection posted an impressive growth of 21.5 percent at
Rs.443.886 billion compared to Rs.365.401 billion during the same period of
last year.
Balance
of Payments: The current account deficit
reached to $ 2.6 billion (0.76 percent of GDP) in July-August FY 2018, from $
1.3 billion (0.42 percent of GDP) in last year. On MoM basis, the external
account position is showing an improvement and CA improved by 73 percent during
August 2017 over July 2017 on account of better exports, remittances and FDI
growth.
Exports: Exports
started showing positive results during FY2018 due to several initiatives for
the promotion and facilitation of exports, such as mark-up rates has been
reduced on Export Re-finance Facility (ERF) from 8.4
percent to 3.0 percent. Prime Minister’s package of Rs.180 billion is also
aiding the export sector. During Jul-Aug FY2018, exports posted a significant
growth of 17.9 percent and on MoM basis 14.3 percent in August 2017.
Remittances: During
July-August FY2018, overseas Pakistani workers remitted US $ 3.496 billion as
compared with US $ 3.089 billion received during the same period in the
preceding year, which is higher by 13.18 percent.
FDI: FDI
amounted to $2.411 billion during FY2017 compared to $2.305 billion during same
period last year, posting a growth of 4.6 percent. During July-August, FY2018,
FDI posted a significant growth of 154.9 percent which bodes well for the
Balance of Payment.
