Finance ministry says complying with debt-to-GDP limit in FRDL Act 2005

ISLAMABAD: Finance ministry on Saturday said the government is complying with the benchmark of debt-to-GDP ratio set in the Fiscal Responsibility and Debt Limitation (FRDL) Act 2005 with total debt and liabilities standing at Rs19.6 trillion as of June end.

“The limit of 60 percent of debt to GDP (ratio) will be applicable by end June 2018 as per the Fiscal Responsibility and Debt Limitation Act,” a ministry’s spokesperson said in a statement. “Therefore, the government is not presently in violation of this threshold of FRDLA.” 

The spokesperson said the country witnessed a marginal increase of 1.4 percent in debt-to-GDP ratio to 61.6 percent in 2017 from 60.2 percent in 2013, while global debt-to-GDP ratio increased around 8 percent during the last four years.

External public debt increased $14.4 billion to $62.5 billion, while non-public debt rose $7.3 billion.

The ministry’s official said most of the clauses of the FRDL Act 2005 were outdated and so “the present government not only updated the clauses in accordance with the present economic realities but also defined path with an objective to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 formalising the definition of public debt.” 

“These amendments were made regardless of the tenure of any political government to clearly define a debt reduction path,” he added. “Accordingly, the gross public debt numbers are consistent and unchanged as reported in the government publications in the past.” 

Finance ministry’s spokesperson further said the government has introduced a 15-year debt reduction path to improve debt sustainability “whereby starting from 2018/19 the public debt-to-GDP ratio shall be brought down from 60 percent to 50 percent by end 2032/33.”    

“Fiscal sector of the economy has witnessed a notable improvement on account of contained expenditures and increased revenues,” he added. “Consolidation efforts are on track since government has successfully curtailed the fiscal deficit at 5.8 percent of GDP in FY2017 from 8.2 percent of GDP in FY2013.”

The ministry’s official said tax-GDP ratio reached to 12.5 percent in FY2017 as compared to 9.8 percent in FY2013. Tax collection of Federal Board of Revenue increased around 73 percent to Rs3,361 billion during the four-year period.

He said there has been a tremendous growth of 35 percent during the period under review. The economy size surged to $304 billion in 2017 from $225 billion in 2013.

“This was only made possible by the prudent policies of the government that included historically low domestic interest rates, a prolonged and sustained period of low inflation, significant surge in private sector credit, huge increase in PSDP (public sector development programme) spending and above all an effective monetary policy,” he added.

The finance ministry’s official said credit to private sector has seen an expansion of Rs747.9 billion in FY2017 as compared to a decline of Rs7.6 billion in FY2013.