Finance ministry clarifies news report

ISLAMABAD: The spokesman of the Finance Division Saturday categorically rejected a report carried by a section of press, "Dar's Legacy: a heavily-indebted Pakistan" saying during last four years the national economy witnessed tremendous growth.

In a statement, the spokesman said that in the past four years of the present government had seen tremendous economic growth whereby the size of the economy grew from $225 billion in 2013 to $304 billion in 2017 thus constituting an aggregate growth of 35 per cent during the said period.

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 and price stability, significant surge in private sector credit, huge increase in PSDP spending and above all an effective monetary policy coupled with a judicious fiscal policy that saw the budget deficit come down from 8.2 % in 2013 to 5.8% in 2017. Despite all these positive developments, some detractors habitually cherry pick the selective numbers and present them in isolation without giving the reader a proper perspective and a complete picture of the economy.

The news report said that Pakistan's total debt and liabilities increased to Rs25.1 trillion. It further stated that total external debt and liabilities has increased to roughly $83 billion by end of fiscal year 2016-17 and a sum of $8.2 billion was spent on external debt servicing.

The report unduly criticised the changes made in Fiscal Responsibility and Debt Limitation Act, 2005. According to the spokesman, the report portrayed a negative picture of the economy by analysing the debt in isolation and completely ignoring positive developments witnessed during the past few years.

The spokesman clarified that firstly, the writer has used exaggerated numbers which create doubts and mislead the general public. The debt burden is better understood in comparison to its relation with the GDP instead of absolute debt numbers, he added. Another way to gauge the increase in public debt burden of the country is to compare that with relevant global debt statistics.

In this regard, Pakistan witnessed a marginal increase of 1.4 percent(from 60.2 percent in 2013 to 61.6 percent in 2017) in its total debt to GDP ratio during last four years while during the same period, global debt to GDP ratio increased by about 8 per cent (Source IMF World Economic Outlook).

Similarly, external public debt stood at $62.5 billion while news report showed total external debt and liabilities number amounting $82.7 billion at end June 2017 to sensationalise the issue.

The rationale of using external public debt instead of external debt and liabilities has been clarified at many forums, he maintained.

Total External Debt and Liabilities include the debt of other sectors (private sector, bank borrowing) which are not part of public debt since the government is not liable to pay these obligations.

The spokesman said the external public debt increased from $48.1 billion to $62.5 billion i.e. by $14.4 billion while non-public debt rose by $7.3 billion. Therefore, it is incorrect to assume that debt per capita is Rs120,381.

He said 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 formalising 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)".

The finance ministry spokesman said 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.

The news report incorrectly stated that the government is in violation of the original limit of 60 per cent of Debt to GDP set under the Fiscal Responsibility and Debt Limitation Act passed by parliament in 2005. It is to clarify that the limit of 60 per cent of Debt to GDP will be applicable by end June 2018 as per the Fiscal Responsibility and Debt Limitation Act. Therefore government is not presently in violation of this threshold of FRDLA.

Furthermore the government, with an aim to improve debt sustainability, has introduced a 15 year debt reduction path whereby starting from 2018/19 the public debt to GDP ratios hall be brought down from 60% to 50% by end 2032/33. The news report clearly ignores that Pakistan's economic indicators are performing well which has been acknowledged internationally and led to an improvement in country's credit rating.

Some of the key economic highlights are as follows;

GDP Growth: The pace of expansion in the economy accelerated for the fourth consecutive year in fiscal year (FY) 2017 amid improving security situation and energy supply. The real GDP growth in FY-2017 reached a decade high of 5.3 percent.

This broad based growth was on account of remarkable performance of agriculture, industry and services along with pro-growth supportive policies of the government.

LSM Growth: Long Term Finance Facility (LTFF) has been reduced from 11.4 per cent to 6.0 percent which is encouraging the economic activities in LSM sector. The LSM recorded a growth of 5.6 per cent in FY-2017. This growth momentum continues in FY2018 as it recorded a phenomenal growth of 12.98 per cent in July, FY-2018 compared to 1.72 per cent in the corresponding period last year.

Private Sector Credit: The flows of credit to private sector has seen historic expansion of Rs747.9 billion in FY-2017 compared to a decline of Rs7.6 billion in FY-2013. The robust lending is a reflection of favorable supply as well as demand conditions in the economy. On the supply side, the most helpful factor was a healthy deposit growth, which significantly improved the liquidity of the banking system and on demand side, low financing cost encouraged private businesses along with an added impetus from CPEC related activities and higher PSDP expenditures which triggered the demand for fixed investment loan by private businesses.

Improved Business Sentiment: The overall improvement in business sentiment along with supportive policies (historic low interest rate, high infrastructure spending and better law and order) has encouraged a number of firms to pursue expansion plans. Likewise, lowest policy rate has also provided a significant support to industrial sector.

Inflation: FY-2017 marked the third consecutive year when the headline CPI inflation remained lower than the annual target. The general trend was nonetheless increasing after reaching the multi-decade low level of 2.9 per cent during FY2016. During July-August FY-2018, CPI inflation increased by 3.16 percent compared to 3.84 per cent in the comparable period of last year.

The current trend of inflation suggests that it will remain well below the target of 6.0 per cent during FY-2018.

Fiscal Consolidation: Fiscal sector of the economy has witnessed a notable improvement on account of contained expenditures and increased revenues. Consolidation efforts are on track since government has successfully curtailed the fiscal deficit at 5.8 per cent of GDP in FY-2017 from 8.2 percent of GDP in FY-2013.

Tax Collection: The overall tax-GDP ratio has reached to 12.5 per cent in FY-2017 as compared to 9.8 per cent in FY-2013. FBR Tax collection increased from Rs1,946 billion in FY-2013 to Rs 3,361.0 billion in FY-2017, registering an overall growth of around 73 per cent. During July-August FY-2018, FBR tax collection posted an impressive growth of 21.5 percent at Rs443.886 billion compared to Rs 365.401 billion during the same period of last year.

Balance of Payments: The current account deficit reached to $2.6 billion (0.76 percent of GDP) in July-August FY-2018, from $1.3 billion (0.42 percent of GDP) in last year.

On MoM basis, the external account position is showing an improvement and CA improved by 73 per cent during August 2017 over July 2017 on account of better exports, remittances and FDI growth.

Exports: Exports started showing positive results during FY-2018 due to several initiatives for the promotion and facilitation of exports, such as mark-up rates has been reduced on Export Re-finance Facility (ERF) from 8.4 percent to 3.0 percent. Prime Minister's package of Rs180 billion is also aiding the export sector.

During Jul-Aug FY-2018, exports posted a significant growth of 17.9 per cent and on MoM basis 14.3 per cent in August 2017. Remittances: During July-August FY-2018, overseas Pakistani workers remitted $3.496 billion as compared to $3.089 billion received during the same period in the preceding year, which is higher by 13.18 percent.

FDI: FDI amounted to $2.411 billion during FY-2017 compared to $2.305 billion during same period last year, posting a growth of 4.6percent. During July-August, FY-2018, FDI posted a significant growth of 154.9 percent which bodes well for the balance of payment.