PTI govt delays report on debt management risks

This comes amid steep rise in public debt and liabilities in past one year

ISLAMABAD: The government has inordinately delayed the release of a critical report on public debt management risks amid a steep rise in public debt and liabilities in the past one year due to fiscal slippages and shortfall in tax revenues.

The finance ministry released the last report on debt management risk indicators in June 2018. Next reports are due for the period of December 2018 and June 2019. However, no report has been launched for the past one and a half year.

There has been a delay of over 10 months in the release of December 2018 report while the June 2019 risk assessment report has been pending for the last four months.

The Ministry of Finance did not respond to questions about reasons for the delay in release of reports and a steep rise in public debt and liabilities.

The debt assessment report covers indicators such as Pakistan's foreign currency debt as a percentage of official foreign currency reserves, debt refinancing risks, interest rate risks and contingent liabilities. Some of those indicators have significantly deteriorated since the publication of the last report.

There was also improvement in some other indicators, mainly because of the government's decision to convert its short-term borrowing from the central bank into long-term debt of up to 10 years.

The re-profiling of government debt held by the State Bank of Pakistan (SBP) into long-term securities has significantly increased the average maturity of domestic debt and has reduced the government's gross financing needs.

About six years ago, Pakistan had started giving quarterly reports on the insistence of the IMF. The global lender had imposed a structural benchmark that made it binding for the finance ministry to publish quarterly debt management risk reports.

After the end of the last IMF programme, the previous government first stopped releasing the reports and then decided to give only half-yearly reports.

The Pakistan Tehreek-e-Insaf (PTI) government now seems to be following in the footsteps of the Pakistan Muslim League-Nawaz (PML-N) administration amid a worsening debt situation.

The report is aimed at covering all government liabilities - including guarantees - in order to monitor fiscal and financial risks and implement the medium-term debt strategy.

The latest staff-level report of the IMF reveals a significant spike in the country's public debt and liabilities.

The general government debt, including guarantees and IMF borrowing, rose to 88% of GDP by the end of last fiscal year, which was higher by 8.7% of GDP against the IMF's own estimates, according to the report.

The IMF said debt in the previous fiscal year increased as a consequence of fiscal slippages, exchange rate depreciation and government's decision to increase cash deposits considerably to provide a financing cushion against potentially unfavourable market conditions.

For this fiscal year too, the IMF has revised upward its public debt and liabilities' projection to 84.7% of GDP or Rs37.6 trillion, showed the report.

The IMF had earlier projected public debt and liabilities at Rs35.7 trillion or 80.5% of GDP. It has now increased the estimate by 4.2 percentage points or Rs1.9 trillion.

It has also projected that the external public and publicly guaranteed debt as a percentage of total exports will increase from the earlier projection of 234% to 246%.

The IMF has also projected the external public debt at $113.5 billion for this fiscal year - a billion-dollar higher than the earlier estimate.

However, the IMF stressed that despite close to 88% debt-to-GDP ratio, Pakistan's debt was still at sustainable levels.

"Despite the higher debt outturn for FY19, the bottom-line DSA (Debt Sustainability Analysis) remains unchanged since the programme approval in July, where public debt continues to be judged sustainable," said the IMF.

In its report, the IMF has also raised questions over the government's debt management strategy.

"Elevated cash buffers highlight the need for a sound debt management strategy," said the IMF report.

In order to improve the debt management, Pakistan has agreed with the IMF to establish a dedicated Treasury and Debt Management wing by December 2020. The new wing will consolidate debt management functions as well as execute cash flow forecasting and management.

The IMF said that to reduce rollover risks, Pakistan also agreed to continue to extend maturities and aims to accept prevailing market rates so that the volumes issued in primary auctions are closer to the previously announced targets.

A recent report of the World Bank also raised questions over the country's debt management. The report underlined that there was no consolidated system for recording and reporting of debt.

At present, the SBP, Ministry of Finance and economic affairs ministry separately record domestic and external debt data.

Due to the involvement of various entities at different levels, there is a need for a consolidated system regarding reporting of all transactions related to debt and guarantees, suggested the World Bank.