Pakistan plans to set up body for effective debt management


SLAMABAD: The government is working to establish Debt Management Office (DMO) in the Ministry of Finance for effective planning and execution of related functions, WealthPK reported.
According to a brief of the Ministry of Finance on a bill titled Fiscal Responsibility and Debt Limitation (Amendment) Act, 2021, a copy of which is available with INP-WealthPK, in order to strengthen the Debt Policy Coordination Office (DPCO) and transform it into DMO with mandate and resources for effective planning and execution of debt management functions, amendment to the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005 is required.
The FRDL Act provides for the reduction of federal fiscal deficit and ratio of public debt to gross domestic product (GDP) to a prudent level by effec-tive public debt management.
The Finance Ministry brief states that the proposed amendments to the FRDL Act, 2005 are expected to assist the government to limit the stock of government guaranties at  10 percent of GDP (gross domestic product), publication of medium-term national macro-fiscal framework, and to institutionalise debt management functions in a single office reporting to the finance secretary instead of the finance minister.
“Within 60 days of commencement of the FRDL (Amendment) Act 2021, the federal government shall establish an office to be known as DMO, consisting of four executives, including a director general, who shall report to the secretary finance,” reads the bill.
The National Assembly’s Standing Committee on Finance will consider the bill in its upcoming sessions and review it in detail before its clearance, WealthPK reported.
According to the bill, the Finance Division shall prepare medium-term national fiscal framework, covering aggregate fiscal projections, especially revenue, expenditure and primary balance of the upcoming fiscal year and the two outer years in respect of the federal government, provincial governments and other areas of Pakistan, which shall be presented to the National Finance Commission (NFC) monitoring committee. It will also be published in budget strategy paper and annual budget statement.
Under the bill, ceiling on the stock of total public debt has been proposed to the 60 percent of the GDP, while ceiling on stock of outstanding guarantees has been proposed to be 10 percent of GDP.
Also, ceiling on new guarantees issued during a fiscal year has been proposed to be 2 percent of GDP, while ceiling on the stock of total public debt and guarantees has been proposed to be 70 percent of GDP.
It added that conditions for the departure from the intended fiscal and debt reduction paths have been made more generalised to allow for unforeseen circumstances as determined by the National Assembly. Previously, this departure was allowed for reasons of national security or calamity.
Under the bill, additional responsibilities have been assigned to DMO which include the preparation of medium-term debt management strategy in line with Medium Term Budgetary Framework (MTBF), maintenance of record of public debt and guarantees with the help of State Bank of Pakistan (SBP), Central Directorate of National Savings (CDNS) and Ministry of Economic Affairs (MoEA).
The DMO will prepare annual borrowing plan, raise domestic debt through government securities, formulate and implement process for raising domestic debt, formulate guidelines for CDNS and other agencies and raise external debt through commercial sources.
It will also coordinate with external finance wing for debt raise for balance of payment support, coordinate with the Ministry of External Affairs in raising external debt and prepare policy guidelines to raise external debt.
More functions of the DMO under the proposed bill include preparation of debt bulletin, implementation process for issuance or monitoring of guarantees, evaluation of requests for government guarantees, acting as custodian of guarantees and as investor relations office of Finance Division in matters pertaining to public debt.
Currently, Pakistan has limited financial resources to have enough development expenditure and smoothly run the economy. Although the government is taking steps to increase tax to GDP ratio and exports to decrease reliance on debt, the pace of increase in public debt is fast, creating difficulties for the economy.
Significant chunk of tax revenue is being spent on debt servicing which is increasing with the passage of time.
According to the State Bank of Pakistan (SBP), Pakistan’s total debt and liabilities have reached around Rs50.48 trillion at the end-September 2021 and this amounts to 93.7 percent of GDP. The SBP data also showed total public debt at Rs41.47 trillion at the end of September 2021.
These figures suggest that the current state of public debt is higher than its desired limit because government has proposed in the bill that total debt and liabilities should not be higher than 70 percent of GDP.
So, there is a dire need to control the current pace of increase in public debt by maintaining strict financial discipline and carrying out prudent public debt management. Otherwise, it will bring adverse consequences for the country’s economy. – INP

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