Per person debt rises nearly 50%
photo: file
The Ministry of Finance has submitted a self-contradictory fiscal policy statement in the National Assembly that also hid critical information from legislators, undermining the spirit of law that requires objective explanation of fiscal indicators.
The Fiscal Policy Statement 2021-22 also showed that per person debt burden increased to Rs179,070 at the end of last fiscal year – an additional liability of Rs58,971, or 49%, on every citizen in three years since Prime Minister Imran Khan assumed office.
The statement has been prepared by the budget wing of the Ministry of Finance to comply with the requirement of Fiscal Responsibility and Debt Limitation Act of 2005.
But the ministry severely compromised transparency, objectivity and professionalism in the policy statement, also committing factual errors.
On January 20, the National Accounts Committee approved the rebasing of the economy to fiscal year 2015-16 from the old base of 2005-06 to incorporate changes in the structure of the economy.
This expanded the size of the economy in 2020-21 to Rs55.5 trillion, up from the old base of Rs47.7 trillion. The increase in the size of the economy showed improvement in indicators like budget deficit, debt-to-GDP ratio, but it further deteriorated the tax and revenue-to-GDP ratios.
The Ministry of Finance used both the old gross domestic product (GDP) figure and the new one to explain the numbers as it deemed appropriate without caring for the objectivity, showed the document.
It also used the new GDP figure without formal approval of the rebasing of economy by the governing council of Pakistan Bureau of Statistics (PBS).
These numbers have not yet been approved by the PBS governing council. The council meeting has not been convened for many months due to a dispute over its chairmanship.
Under the law, the minister for finance, revenue and statistics is the chairman of the governing council but after the transfer of PBS to the Ministry of Planning, Asad Umar has been chairing its meetings.
The Law Division had barred Umar from chairing the council meetings, although the cabinet has recently addressed the issue.
The quality of debt and fiscal policy statements has been greatly compromised since the budget wing took over the job of publication from the Debt Policy Office.
The statement showed that the budget wing of the Ministry of Finance has selectively used both the old and new rebasing numbers, as per its convenience to show a rosy picture to parliament instead of the realistic one.
For instance at one place, the budget wing used the revised GDP number to show that the budget deficit in the last fiscal year narrowed to 6.1% of GDP.
On the very next page, the budget wing used the old GDP size to wrongly prove a point that the budget deficit would fall further to 6.3% of GDP during fiscal year 2021-22, from 7.1% in 2020-21.
“In the fiscal sector, the government plans to continue with the adjustment measures, which are projected to reduce the deficit to 6.3% of GDP during fiscal year 2021-22, from 7.1% in 2020-21,” said the fiscal policy statement.
The apparent purpose of using the contradictory base years was to avoid admitting the fact that the fiscal position would deteriorate compared to the last fiscal year.
The budget wing also erroneously reported the federal development expenditure to the National Assembly and also attempted to further inflate it by using the old economy figure.
“The federal development expenditures ticked up to 6.1% (Rs3.4 trillion) of GDP during fiscal year 2020-21 compared to 6% of GDP during the previous year,” said the thin policy statement given to parliament.
The federal development spending stood at Rs694 billion, which was equal to 1.3% of the revised size of the economy. The statement is also silent on the violation of reducing the federal fiscal deficit to 4% of GDP, which is the requirement of the FRDL Act.
The federal deficit stood at 6.7% of GDP on the new base of economy and at 7.8% of GDP on the basis of old base of the economy.
According to the FRDL Act of 2005, the government is bound to include “the analysis to the fullest extent possible of all policy decisions made by the federal government” in the Fiscal Policy Statement.
In conclusion, the Ministry of Finance gave figures for the three quarters of fiscal year instead of the full-year figure to prove the point that the government successfully contained the budget deficit.
These omissions have been committed despite the fact that the finance minister and the finance secretary have given the “statement of responsibility” under the law to ensure the “integrity of the disclosures contained in the economic policy statements”, which should be having “consistency with the requirements of the” FRDL Act.
The Fiscal Policy Statement showed that the total public debt was recorded at Rs39.9 trillion at the end of June 2021. Resultantly, the public “debt per capita stood at Rs179,070 at end-June 2021”.
The per person debt burden increased by Rs58,971, or 49.1%, in the last three years.
The Ministry of Finance has worked out the per capita debt on the assumption of total population of 222.6 million.
Published in The Express Tribune, February 3rd, 2022.
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