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PR No. 95 DOMESTIC DEBT REMAINS WITHIN SUSTAINABILITY THRESHOLDS Islamabad: November 12, 2017

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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