Excludes non-plan resources from total public debt. PHOTO: FILE
ISLAMABAD:
The government has quietly excluded billions of dollars in foreign loans for mega projects and recurring expenses from the total public debt in order to understate its actual debt burden and to create space for more budgetary borrowings from abroad.
The government will not treat these ‘non-plan resources’ as part of the public debt, finance ministry sources revealed.
The decision comes just as criticism against the government’s heavy reliance on foreign borrowings is growing. From June 2013 to September 2015, it has contracted $26.4 billion fresh loans and out of that $18.1 billion have already been disbursed. However, the net addition in foreign loans was over $5 billion and the remaining amount was consumed in retiring the previous loans.
As compared to $26.4 billion that the PML-N government contracted in the last years, the PPP government had contracted $25 billion loans during its five-year term.
For decades, the Economic Affairs Division (EAD) has been booking external loans as either ‘non-plan’ or ‘plan’ resources. Those in the latter category are obtained to finance the federal Public Sector Development Programme and the annual development plans of provinces.
For instance, the budget book of Foreign Economic Assistance in the current fiscal year showed that the government would borrow $9 billion this year alone. Of that, $7.5 billion were booked as plan resources and $1.5 billion as non-plan loans. In future, non-plan loans like $6.2 billion to be obtained for Karachi Nuclear Power Projects will not be part of the public debt.
After the decision, the $1.5 billion would still be borrowed but will not be part of total public debt that the finance ministry will report on June 30, 2016.
These borrowings have been shifted to publicly guaranteed debt, which is not calculated as part of the total public debt, according to EAD officials.
The decision was also taken to defeat the International Monetary Fund’s condition that caps the maximum borrowings that the government can make for budget financing. The sources said Finance Secretary Dr Waqar Masood had visited the EAD a couple of months back to implement the revised accounting plan.
A top official of the finance ministry insisted that decision to end the non-plan accounting category was a reform aimed at bringing some clarity.
Another purpose of this creative accounting is to claim achievement by showing that in percentage of total size of the economy, the public debt was less than the PPP period, said the sources. The finance ministry said that as of June this year the debt-to-GDP ratio was 63.5%, which was slightly better than the PPP tenure ratio. However, it is not disclosing how much debt it shifted from the public debt to publicly guaranteed debt.
SBP-ministry differences
There are also differences between State Bank of Pakistan and Ministry of Finance over the definition of total public debt. A recent SBP summary on Pakistan’s debt and liabilities suggests that the central bank does not agree with the finance ministry’s definition of debt. The report mentions two separate figures of total public debt. According to the ministry’s definition, total public debt was Rs18.14 trillion as of September this year, which was Rs384 billion less than the one the central bank reported, said the SBP.
Published in The Express Tribune, December 11th, 2015.
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