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Govt, IMF agree to restrict future regimes to cut public debt

By Mehtab Haider
February 07, 2016

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) have agreed to chalk out 15 years roadmap (2018-2033) for restricting all future governments coming into power to scale down public debt by 0.33 percent of the GDP every year to bring it down to 50 percent of the GDP by year 2033 and putting ceiling on federal budget deficit in the vicinity of 3 percent of the GDP for avoiding reversal of macroeconomic gains.

“Pakistan and the IMF team have agreed to amend the Fiscal Responsibility and Debt Limitation (FRDL) Act 2005 by introducing amendment bill in Parliament, binding future governments to scale down the burden of the public debt and reducing the budget deficit on annual basis so that the debt to GDP ratio can be brought down to 50 percent of GDP in next 15 years with effect from 2018 till 2033,” top wizards of the Finance Ministry confirmed to ‘The News’ here on Saturday.

When a journalist raised a question on obtaining loans and its linkages with development during the press conference of Minister for Finance Ishaq Dar, he confirmed that the net money obtained from the IMF under existing programme stood at only $850 million as the Fund provided $5.27 billion but Islamabad paid back $4.42 billion on account of loans obtained during the PPP-led regime.  “We are ready to develop roadmap for next 10 to 15 years in order to bring down debt-to-GDP ratio around 50 percent,” he said and added that the debt to GDP ratio stood at 63.9 percent which was brought down to 63 percent of the GDP. “Now we are committed to bring it down to 60 percent of the GDP till 2018,” he added.

He said that it was a myth that the government borrowed expansive loans as the net average cost of external loans in last three years stood at 3.03 percent.

He said that the FRDL law was his brainchild when he brought Tariq Hassan from World Bank on October 7, 1999 by assigning him task to work on restricting the burden of the public debt that later on resulted into approving the FRDL Act 2005.

However, the sources, who participated in review talks in Dubai, said that the IMF team led by Harald Finger raised serious questions that how the country was going to avoid reversal of achieved macroeconomic gains as rampant spending spiral might gain momentum during the tenure of future governments.

While praising the government’s performance on macroeconomic front, the IMF team stated that there was need putting in place a mechanism that bound the future governments to protect these gains.

In the review talks, the IMF mission showed its reservation over reversal in privatisation plans of loss making public sector entities, including the PIA, delay in privatising Pakistan Steel Mills and power distribution companies.

In order to avoid derailment of the IMF programme, Ishaq Dar floated the idea to amend the FRDL Act 2005 by introducing key changes in it that would restrict the future governments not to tinker with the macroeconomic gains.

“Instead of irrelevant clauses of bringing down revenue deficit, the government has agreed with the IMF to put restriction on budget deficit at federal level whereas the deficit would be brought down to 4 percent of the GDP till 2018 and for beyond 15 years the governments will be restricted to keep the deficit in the range of 3 percent of GDP,” said the official.

On public debt, Finance Ministry high-ups apprised the IMF that the public debt which stood at over 63 percent of the GDP would be brought down to below 60 percent of the GDP by 2017-18 at the end of the tenure of the incumbent government while the amendments in FRDL Act 2005 would be introduced under which the future governments would be required to bring down the debt-to-GDP ratio by 0.33 percent by every year in next 15 years to bring it down to 50 percent of GDP level by 2033.