Case in point is a report carried by a section of media on November 12, 2017 titled "Govt. adds Rs.1
trillion to debt pile in 60 days" stating
that the federal government has added another Rs1 trillion to its growing debt
pile in just two months, indicating that the finance ministry cannot ensure
fiscal discipline any more.
The news report has used exaggerated statements and drawn
baseless conclusions with the intentions to mislead the general public. The
limited understanding with reference to public debt management and cash
management operations of the government is clearly evident, the sole objective
to create sensation without substance.
Some of these
are highlighted as follows:
As
opposed to writer claim that the government has deviated from sound fiscal
discipline, fiscal performance remained robust as overall budget deficit was
recorded at Rs.324 billion in the first quarter this year as compared to Rs.438
billion in the same period last year. This was made possible through robust tax
collections and lower expenditure. In terms of GDP, the overall deficit
decreased to 0.9 percent in the first quarter of current financial year as
compared to 1.3 percent recorded in the first quarter of last year. Reduced
fiscal deficit means lower public debt accumulation which supports alignment to
targets defined in the amended Fiscal Responsibility and Debt Limitations
Act;
The
limited understanding of the writer with respect to public debt management can
be gauged from the fact that the news report contains a statement as “the share
of short-term public debt kept increasing to alarming levels and stood at
50.4% of the total domestic debt”. First of all, it is to be noted that
domestic debt is a part of total public debt while the statements depicts the
opposite. Either the writer does not have understanding of public debt or he is
deliberately creating panic to mislead the general public. Further, the share
of short term debt in public debt portfolio stood at 39.5 percent at end August
2017 as opposed to news report claim of 50.4 percent;
It is to be noted that the net increase in public debt was recorded at Rs.573 billion during first two months of current fiscal year as opposed to news report claim of Rs. 1,003 billion. In this regard, following facts are worth noting:
As opposed to news
report claim that domestic debt increased by Rs.858 billion during first two
months of current fiscal year, the net increase in domestic debt was recorded
at Rs.428 billion while the rest of the increase went to increase the liquid
assets of the government. It is the normal cash management practice which is
followed throughout the world whereby cash buffers are built in anticipation of
the upcoming bullet maturities/contingencies. Government need to meet the PIBs
maturity in the first quarter of this fiscal year and accordingly cash buffers
are built to smoothly meet the upcoming obligations. It is worth noting that
the increase recorded in the liquid assets of the government during
July-August, 2017 was subsequently reversed as the government used its liquid
assets primarily to retire some of the in-quarter borrowings from State Bank of
Pakistan. There is a need to understand that seasonality in government
borrowings/deposits may be observed during short period of time, however, it is
usually reversed at the end of each quarter. Specifically, any disconnect
between borrowing and fiscal deficit financing is reversed on half yearly or
annual basis which is a normal practice throughout the world and Pakistan is no
exception;
The increase in external
debt by Rs.145 billion was not entirely on account of fresh net external
borrowing but was also contributed by significant translational losses on
account of appreciation of international currencies against US Dollar and
depreciation of Pak Rupee against US Dollar.
It
is therefore evident that the sole purpose of analyzing the debt over such
short period of time is to create sensations or the writer clearly lacks the
understanding to distinguish between public debt management and cash management
operations of the government.
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.
In another recent publication dated
November 11, 2017, the writer unduly alleged that the government has
inordinately delayed the release of a critical quarterly report on public debt
management as the country’s debt indicators have worsened in the past one year.
It is to be clarified that the government has never published risk report on
debt management on quarterly basis even during IMF program. The matter was
discussed with the IMF during IMF EFF program and it was explained that debt
indicators do not change much in a span of three months and accordingly
publishing risk report on quarterly basis does not provide much insight into
debt risk indicators. The same was explained to writer, however as always, he
chooses to ignore the facts and tried to create sensations through
misreporting. The risk report at end June 2017 will be published on Finance
Division website shortly. Furthermore, the said report also misrepresented the
facts in November 11, 2017 report by attributing a false statement with a
senior official which was later removed from the epaper but was not taken back
in the print version of the paper to avoid embarrassment to the paper about
this blatant misrepresentation.
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