Sovereign guarantees: Finance ministry denies existence of ceiling

During fiscal 2012 government issued new guarantees worth Rs177 billion or 0.86% of the estimated GDP during FY12.

There is no limit prescribed under the FRDLA, 2005, on the total outstanding stock of sovereign guarantees; however the stipulated limit refers to annual issuance of sovereign guarantees only.

This was clarified in a statement released by the Ministry of Finance in response to a story published in The Express Tribune. According to the press statement, during fiscal 2012, the government issued new guarantees worth Rs177 billion or 0.86% of the estimated GDP during FY12, which is within the limit prescribed under the FRDLA, 2005. Therefore there has been no violation of the Act. The statement also said that the guarantee amount quoted by the correspondent is actually the outstanding guarantee stock as of June 30, 2012, posted on the website of Finance Division, and not the new guarantees issued during fiscal 2012. The number of fresh guarantees issued during the year is also provided on the website, which was overlooked by the correspondent.

According to The Express Tribune reporter, there are three main issues. Firstly, under the FRDL Act, there is a limit on issuing guarantees. The Finance Ministry has partly admitted this, he says. The limit is on both new and renewal. This can be verified from the Economic Survey of Pakistan 2011-12, chapter: contingent liabilities. Since Masroor Qureshi took over as DG Debt Office, there are concentrated efforts to interpret the law in a way that the debt burden and other such matters are interpreted to the benefit of economic managers. This can be verified from the fact that the Finance Ministry and SBP produce different sets of debt data. According to The Express Tribune correspondent, the SBP data is more comprehensive and depicts a truer picture, as it is inclusive and covers all aspects of the debt.

As far as the debt stock is concerned, the Finance Ministry is hiding the facts from the nation. The Ministry does not have complete record of the debt stock of the last 65 years. The debt stock is understated. This remains one of the bones of contention between the Finance Ministry and the IMF.

Published in The Express Tribune, August 30^th, 2012.