PTI govt empowers debt office

Decides to amend fiscal law to enhance its role for planning and raising loans

ISLAMABAD:

The federal government has decided to amend the Fiscal Responsibility and Debt Limitation Act to empower its public debt office for planning and raising loans amid heightened debt-related risks due to over 41% increase in debt in less than two years.

The proposed legal changes would translate the role of the office from mere debt policy coordination to the debt management office. These legal changes are also being made to fulfil the conditions of $500 million loan that the World Bank approved on June 30. To qualify for the loan, the government has already given these powers to the debt office on ad-hoc basis after the Ministry of Law refused to make the legal changes part of the Finance Act 2020 that the national assembly passed last month.

The government has withdrawn functions of the budget and external finance wings of the Ministry of Finance and gave these powers to the Debt Policy Coordination Office. Also, the office has been given authority to set annual and mid-year targets for the Ministry of Economic Affairs for external borrowings and issue policy guidelines for this purpose.

A key administrative change was placing the Debt Policy Coordination Office under the finance secretary as opposed to the federal finance minister. For this purpose the law will be amended soon, said sources in the Ministry of Finance.

The director-general of debt office will work under the finance secretary and he will be assisted by three directors responsible for debt planning, management and operations. The director-general will be hired in a special pay scale while the directors will be hired in management pay scales from the private sector.

Although during the Pakistan Muslim League-Nawaz’s (PML-N) time the law ministry twice permitted to amend the FRDL Act of 2005 through finance bills, it has not allowed it this time. The previous government had twice amended the definition of the public debt in addition to limiting disclosure requirements. The federal government’s public and publicly guaranteed debt has been rising and it is expected to hit 92% of the gross domestic product (GDP) in the last fiscal year 2019-20 due to ever-increasing expenditures and shrinking revenues. Another worsening indicator is the high cost of borrowings, which has increased the debt servicing cost to nearly 42% of the total budget.

The gross public debt that stood at Rs24.9 trillion in June 2018 has jumped to Rs35.2 trillion as of end-March 2020, an addition of Rs10.3 trillion or 41.4% in less than two years, according to the State Bank of Pakistan (SBP). Through an administrative notification, the finance secretary has provisionally assigned the additional functions to the Debt Policy Coordination Office and approved its new organogram, pending necessary amendments in the Fiscal Responsibility and Debt Limitation Act of 2005, according to April 27 notification.

The April notification superseded the March office order when the finance secretary had placed the debt office under the additional finance secretary, external finance.

As per the law, the debt office should be central to debt management in the country as it is mandated by the Pakistan Fiscal Responsibility and Debt Limitation Act to undertake coordination within all designated entities.

However, due to some legal and administrative issues, the public debt office has never been empowered in the past 15 years. The latest changes are being introduced under pressure from the World Bank.

Earlier, the debt office was responsible for preparing a debt reduction path to achieve the principles of sound fiscal and debt management; to monitor and evaluate external and domestic borrowing strategies and to provide policy advice on an appropriate mix of external borrowing from all sources, according to the law.

But its advice was overruled in the past and the budget wing of the Ministry of the Finance had the final say in debt matters.

Now, raising domestic debt through domestic government securities, bank loans or any other domestic borrowing instruments other than those issued by the Central Directorate of National Savings (CDNS) will be the responsibility of the public debt office. The debt office has also been assigned the responsibility to monitor the working of the CDNS.

Raising external debt through commercial sources including debt securities such as bonds, sukuks, bank loans or any other instruments will be the responsibility of the debt office. Earlier, this function was performed by the external finance wing of the Ministry of Finance.

Another key responsibility of the debt office will be coordination with the external finance wing to record and analyse any debt raised for the balance of payments cover or through the International Monetary Fund (IMF). Setting annual and medium-term targets for economic affairs ministry in raising external debt through multilateral and bilateral sources and advising the economic affairs ministry on financial terms and conditions or any other matter pertaining to external debt will also be the responsibility of the debt management office.

The debt office will also propose guidelines for finance and economic affairs ministries with regard to external debt. The issuance, management, valuation, budgeting, funding, allocation, monitoring of government guarantees including for the public sector enterprises will be the responsibility of the debt office.

The debt office will also maintain the authentic record of the public debt and government guarantees.

A debt bulletin will also be published that must include information on public debt and guarantees, gross financing inflows, repayments and impact of exchange rate movements on the debt.

Published in The Express Tribune, July 5^th, 2020.

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