Islamabad: Recording the public debt-to-GDP ratio at 62.7 per cent by the end of fiscal year 2012-13, the ‘Debt Policy Statement 2013-14’ released by the Ministry of Finance on Monday suggests the government to adopt an integrated approach for economic revival and debt reduction strategy.
These measures will require some ‘difficult trade-offs’ in the short-term, thus implementing the structural reforms that boost potential growth is a key to ensure debt sustainability, according to the statement.
“Crossing of this threshold by 2.7pc was mainly due to the actual deficit being higher than projected,” the statement said.
The public debt also includes loans from IMF amounting to $4.4bn or 1.0pc of the GDP as on June 30, 2013. The borrowing from IMF is only utilised towards balance of payments support and is reflected in foreign currency reserves of the country, the statement explained.
The condition of reducing debt-to-GDP ratio by 2.5pc annually was envisaged in the ‘Fiscal Responsibility and Debt Limitation Act 2005’ to achieve the core objective of reducing debt-to-GDP ratio below 60pc by the end of 2012-13.
As the government achieved this landmark in 2005-06 and remained within the threshold of 60pc, the sub-limit of annual reduction of 2.5pc was no more applicable, the finance ministry document says.
During 2012-13, the government issued fresh and rollover guarantees aggregating to Rs136bn or 0.6pc of the GDP.
The FRDL Act stipulates that spending on health and education should be doubled to 1pc and 3.2pc respectively in 10 years, beginning July 1, 2013, hence the target was not achieved.
Pakistan’s public debt position deteriorated during the past few years owing to higher interest payments, large subsidies, specially food and energy, growing security spending needs, narrow tax base and rising international commodity prices.
These deficits are adding to public debt and consuming a major chunk of revenues for debt service.
The continuous revenue shortfall over current expenditure is a reflection of non-availability of fiscal space for undertaking development spending for which the government needs to generate a revenue surplus.
“The sooner Pakistan achieves and maintains a primary surplus, the better it is for stabilising country’s debt burden”, suggests the debt policy statement.