Senate panel wants public debt reduced as level reaches 15-year high

Says future generations will be unable to repay accumulated debt

ISLAMABAD: As public debt peaks to a 15-year high of 70.1% of GDP, a Senate panel asked the government to adhere to the Fiscal Responsibility and Debt Limitation (FRDL) Act to save future generations.

“The government should adhere to the FRDL and take steps to minimise the debt, which is increasing instead of decreasing,” recommended the Senate Standing Committee on Finance to the federal government. The committee passed the remark as it began the process to prepare its recommendations on the budget for fiscal year 2018-19.

Unlike the past, this time the Senate Standing Committee turned down two recommendations that sought an increase in pension and salaries for government employees as well as pensioners. The standing committee did not adopt a populist approach and instead backed the 10% increase that the government accounted in the budget.  Senators had sought up to a 30% increase in salaries and pensions, which the committee did not support.



But it adopted Jamat-e-Islami’s chief Senator Sirajul Haq recommendation on reduction in the total public debt of the federal government.

The public debt-to-GDP ratio has estimated to peak to 70.1% by end of fiscal year 2017-18. This is the highest level in the past 15 years and also in violation of Fiscal Responsibility and Debt Limitation Act of 2005.

When the PML-N government came into power, the public debt-to-GDP ratio was 64%. In absolute terms, the public debt was Rs14.2 trillion that has already increased to Rs22 trillion till December 2017.

There is a need to strictly ask why the public debt is increasing in contravention of the FRDL Act of 2005, said Dr Waqar Masood, former finance secretary. The standing committee invited Dr Masood and former Senator Anwar Bhindar for its assistance.

Masood said under the FRDL Act the public debt should have been brought below 60% of GDP.

The manner the government is contracting debt suggests that even our next generations would not be able to repay the debt, said Senator Bhindar.

But Special Secretary Finance Noor Ahmad insisted that the FRDL Act allowed to contract debt above the 60% threshold.

For the next fiscal year 2018-19, the PML-N government has estimated fiscal deficit at 4.9% of the GDP or Rs1.9 trillion, which will be bridged by taking more loans. However, the most dangerous issue is growing burden of external debt that is now three times more than Pakistan’s export receipts.

Petroleum levy

The committee deferred the recommendations made for reduction in rates of petroleum levy. The special secretary finance made it clear that the government would increase the petroleum levy after the passage of the budget from the next fiscal year. But he said that it may not exhaust the maximum limit of Rs30 per litre levy.

The argument that petroleum levy would not be increased to Rs30 per litre despite availability of the cushion does not hold ground, said Senator Bhindar.

The government has proposed to increase the petroleum levy on all products by two fold to Rs30 per litre with effect from July.



The standing committee also backed a proposal of having constitutional arrangement on matters that fall in the provincial domain but carry far-reaching implications for the country. There was a view to have national level bodies for having uniform education policy.

The standing committee also recommended increasing the import duty on skimmed milk powder from 45% to 50% aimed at protecting farmers. Minister of State for Finance Rana Mohammad Afzal also backed the committee’s recommendation. The Senate panel also suggested the government to increase import duty on fish filet.

Published in The Express Tribune, May 3^rd, 2018.

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