Public debt to be brought down by 0.33pc of GDP per year

ISLAMABAD: Ministry of Finance has made commitment with the IMF under new structural benchmark to present draft amendment bill into the Parliament on Fiscal Responsibility and Debt Limitation (FRDL) Act by end May 2016, binding the governments coming into power beyond 2018 to cut down public debt consistently in next 15 years.

“After making commitment with the IMF, Ministry of Finance legal team led by legal consultant Mr. Muneeb Zia is working in consultation with Debt Office to present draft amendments bill in FRDL Act 2005 before the Parliament till end May 2016 as it required spadework as well as completing vetting from Ministry of Law,” official sources in Finance Division confirmed to The News here on Sunday. 

Under new structural benchmark, the new amendment in FRDL Act would restrict all future governments to scale down public debt by 0.33 percent of GDP every year to bring it down to 50 percent of GDP by 2033.

Secondly, the revenue deficit target, which is quite irrelevant in case of Pakistan, would be abandoned under the new amendments into FRDLA 2005 and the government would introduce amendments for binding the future governments to bring down the federal budget deficit to 3 percent of Gross Domestic Product (GDP). 

Both sides had reached consensus level point in last review talks held at Dubai when parleys were inching towards breakup situation as the IMF side raised points that there was need to place a mechanism that ensured non reversal of achieved macroeconomic stability.

“Mr. Finance Minister, you have achieved hard earned macroeconomic stability but how you could ensure us that it would not evaporate with one major spiral of spending, resulting into massive indiscipline on fiscal front,” the sources quoted the IMF’s mission chief Harald Finger who politely raised this question before Finance Minister Ishaq Dar during the last review talks held at Dubai. 

In order to avoid derailment of the Fund programme, Finance Minister Ishaq Dar floated an idea to amend the FRDL Act 2005 by introducing key changes in it that would restrict the future government 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 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 GDP would be brought down to below 60 percent of 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.

The FRDL law was the brainchild of Finance Minister Ishaq Dar when he brought Tariq Hassan from World Bank into Pakistan just ahead of Musharraf;s coup against Nawaz Sharif government on October 12, 1999. Mr Tariq Hassan had been assigned to work on restricting the burden of the public debt that later on resulted into approving the FRDL Act 2005 during the tenure of Mush-Aziz government.