ISLAMABAD:
“Mismanagement” at one small office at the finance ministry has left the country in a precarious financial situation where the government needs to refinance Rs2.9 trillion in debt every year and pay far higher interest rates.
The Debt Policy Coordination Office, established under an act of parliament in 2005, has become the epitome of financial mismanagement of the current administration. The litany of the office’s mismanagement can be found in reports issued by the International Monetary Fund (IMF), the State Bank of Pakistan and even the finance ministry itself.
The office was established after a report on the public debt, written by Dr Pervez Hasan, a former vice president at the World Bank. The report also formed the basis of the Fiscal Responsibility and Debt Limitation Act of 2005.
The Act required the government, specifically the debt policy office, to come up with a plan to limit the public debt and formulate a strategy for reducing it. Far from formulating such a policy, the office has allowed the public debt to grow by 88% in three years and severely shortened the average maturity of the debt.
About 54% of the total rupee-denominated debt is now short-term, up from 34% in June 2008. The shorter maturity of the debt means that the government needs to constantly refinance the debt and is exposed to sudden shifts in interest rates, which increases the cost of servicing the national debt.
In fiscal year 2011, the cost of servicing the domestic debt jumped by Rs32 billion beyond its initially allocated Rs621.6 billion, mostly due to a rise in interest rates.
The situation is described in the State Bank’s quarterly report, in the central bank’s usual understated language: “The maturity profile of domestic debt reveals that the government has to rollover the entire stock of Rs2.9 trillion of short term debt at least once a year. Any surge in credit demand from other sectors of the economy could elevate rollover risk and could also expose the government to interest rate risk.”
Finance ministry spokesman Rana Assad Ameen admitted that overspending on domestic debt servicing and rolling over Rs1.7 trillion in debt (which the government had to do last year) did have a negative impact on the budget.
Finance ministry officials are hesitant to speak on the record about the matter but admit that the major banks colluded to force the government to either borrow at short-term maturities or pay higher interest rates. Yet many experts believe that, had the government diversified its borrowing sources as it is required to do under the Debt Limitation Act, it would not have been able to have effectively been blackmailed by the bond market.
Even those who have been part of the debt policy office management have criticised its current administration.
“The debt office delayed the scheduled auction of Pakistan Investment Bonds, a source of long term debt, and that increased the short-term debt,” said Dr Ashfaque Hasan, the former director general of the debt policy office.
The current director general of the office is Masroor Qureshi, an employee of the National Bank of Pakistan, on secondment to the finance ministry. Qureshi’s academic qualifications include an MBA. But the Debt Limitation Act clearly requires that a “macroeconomist” be the head of the office, implying a minimum of a PhD in economics as the requisite qualification for the office.
“If a person is not qualified how could he manage the office?” said Qureshi’s predecessor, Dr Ashfaque Hasan, who holds a PhD in economics from Johns Hopkins University in the United States.
The government has tried to amend the criterion for hiring the head of the debt policy office, but was unable to do so after facing strong resistance from the economic affairs division within the finance ministry and the State Bank of Pakistan.
The debt office management complains that it does not enjoy operational independence from the finance ministry, which they feel absolves them of the charge of mismanagement.
Published in The Express Tribune, July 10th, 2011.
COMMENTS (10)
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Well it says they need macro-economist, which theoretically makes sense but I guess if someone has relevant experience it shouldn't really matter. I am in no way implying that all of these guys are perfect for the job, of course they are not. Had they been perfect we would not be in such a financial mess in the first place. But 88% is an alarming figure, I wonder how much money can we print? When will IMF tell us not to print any more? I do agree with Faraz we need a long term economic policy, I am sure all these "geeks" in finance ministry would know it already. Which begs the real question, Do we have the political will to actually implement the long term economic policy? A million dollar question and the answer is simple, a BIG FAT NO.
@faraz:
Can you please explain which is a relevant degree for financial management and to ensure economic discipline?
Mr. Faraz, how is a CA irrelevant to the finance, revenue and economic affairs ministry? CAs are experts at funds management, revenue matters and sundry economic affairs as they are believed to be qualified Doctors of Philosophy in Commerce.
@faraz: Dear, it is because in Pakistan education is not available in Economics, and we dont have Masters / MS / PhDs in Economics, what a shame on government. The required qualification is the Economics but their political-mafia is ineligible to be educated in this field, and they cannot take our own Economists as Finance or Economic Ministers.
This point on qualification doesnt make sense at all. it is in honesty a bureaucratic hurdle. Does one person himself run the organization...the answer is no. There is a whole chain of people there. Macroeconomist = PHD, how did that imply? In essence, bureaucracy just wants to protect their interests than anything else.
All the finance ministers appointed in past 2 decades had irrelevant degrees: Ishaq Dar-CA, Sartaj Aziz-MPA, Shaukat Aziz-MBA, Naveed Qamar-MBA, Shaukat Tareen-MBA. We need a solid long term economic policy; not just short term measures to attain balance of payments.