ISLAMABAD: In what appears to be a move to hide the worsening debt situation, the government has tinkered with its latest debt policy statement submitted in the lower house of parliament.
In its debt statement for 2015-16, the government has tried to hide the rapid growth of external debts and liabilities in comparison to its foreign exchange earnings by excluding liabilities, show documents available with The Express Tribune. The borrowings under China-Pakistan Economic Corridor and for projects financed outside the national development budget have been excluded from the debt analysis.
By September 2016, the external debt, including liabilities, stood at $66.5 billion. By excluding the liabilities, the figure has been reduced to $51.9 billion – indicating the statement has been tinkered with.
The debt analysis also excludes the average cost of debt possibly to hide the growing costs due to expensive borrowings under Eurobonds and external commercial bank borrowings.
The debt statement is the shortest in recent history, comprising only 35 pages compared with an average 45 pages in the past.
Yet the government could not hide glaring violations of the Fiscal Responsibility and Debt Limitation (FRDL) Act, as it could not bring down debt stocks to sustainable levels prescribed under the law. It also violates the law, as its revenues are not sufficient to meet even its current expenditures.
Despite excluding so many elements from the debt pile, the repayment capacity has further weakened due to an increase in debt-to-revenue ratios, the statement reveals. The country’s ability to spend on development has also shrunk further, thanks to its increasing spending on debt servicing. In order to hide the rapid pace of rising external debt and liabilities as compared to foreign exchange earnings, the government has for the first time excluded liabilities from its calculations.
By excluding liabilities, it has shown the ratio of debt to external earnings at a stable pace, which is tantamount to concealing the fact the country’s debt repayment capacity is weakening.
The country’s average time to maturity of external debt has also worsened, standing at 9.4 years owing to reliance on a short-term debt like Eurobonds and expensive commercial borrowings. However, the maturity of domestic debt remained at the same level.
The government has even excluded the indicators of growth in external debt, growth in foreign exchange earnings and non-interest current account ratios from the policy statement.
The finance ministry’s Debt Policy Coordination Office prepared the statement. Unlike the past, this time the office, which is directly under the finance minister’s control, appears to be defending the government’s moves on external borrowing front.
“Changing definitions and concealing facts from the parliament is nothing but fooling oneself,” said Dr Ashfaque Hasan Khan, former director general of the debt office. He said the government’s latest move was not surprising, as it had already played with the definition of debt, unemployment and tax-to-GDP ratio.
The FRDL Law binds the government to keep public debt below 60% of the total size of national economy. The revenues should be sufficient to finance at least current expenditures – the two most critical conditions the government did not meet again.
But the public debt-to-GDP ratio was recorded at 63.5% by June last year, which was 3.5% higher than the limit imposed under the FRDL Act.
The government could also not increase revenues and its receipts were not sufficient to finance even the current expenditures. The revenue deficit – total revenues minus current expenses – stood at Rs471 billion or 1.7% of GDP in 2014-15. Total public debt was recorded at Rs18.2 trillion at the end of September 2015, registering an increase of Rs1.8 trillion or 11% over September 2014.