-- It incorrectly stated public debt definition under Fiscal Responsibility and Debt Limitation Act as federal government domestic and external debt plus debt from IMF and external liabilities. In fact, public debt is defined as the debt of the government (including Federal Government and Provincial Governments) serviced out of consolidated fund and debt owed to the International Monetary Fund in Fiscal Responsibility and Debt Limitation Act;
-- The authors used incorrect public debt numbers based on the self-created public debt definition which is neither supported by Fiscal Responsibility and Debt Limitation Act nor by the IMF. Based on the incorrect numbers used in the news article, the authors erroneously stated that public debt to GDP ratio stood at 67.7 percent as at end June, 2016 as compared with 63.6 percent as at end June 2013;
-- The Net Debt to GDP ratio as at June 2008 was 53.1percent which had increased to 60.2percent in June 2013 when the present government assumed office. During the period from July 2013 to June 2016, the Net Debt to GDP ratio has remained unchanged at 60.2 percent, thus showing no further deterioration as opposed to false claim that annual increase in debt ratio is higher in the present government tenure. It is worth highlighting here that the net public debt has been calculated in accordance with international best practices and methods used by the IMF as well as various developed and developing countries around the world;
-- The limited understanding of the authors with reference to public debt is evident from the fact that they suggested to include contingent liabilities, guaranteed debt, and debt against commodity operations in the public debt. Accordingly, they arrived at hypothetical estimates of public debt to GDP ratio at 73 percent which is neither supported by International Accounting Standard nor by Fiscal Responsibility and Debt Limitation Act. First of all, it is to be noted that Fiscal Responsibility and Debt Limitation Act, 2005 specifies separate thresholds for public debt and contingent liabilities. Further, International Accounting Standard (IAS) 37 states that the contingent liabilities should not be recognised as liabilities until they are called. Accordingly, contingent liabilities/guaranteesare off-balance sheet items. Further, underlying commodity acts as a security for loans secured against commodity operations which are essentially self-liquidating, thus should not create a liability for the government. Therefore, contentions of the authors in this matter are totally baseless and incorrect.
-- The news article made a false claim that Pakistan's foreign debt is presently recorded at $73 billion. The news article referred to total external debt and liabilities of the country which includes debt of other sectors which by definition are not public external debt since the government is not liable to pay these obligations. It includes debt of private sector and banks etc. The external public debt stood at $57.7 billion as at end June, 2016. The clarity regarding this has already been given in the Finance Minister article and at various fora, however, the news article made another deliberate attempt to mislead the public in this matter;
-- The news article also made a false claim that external debt is likely to reach well over $ 100 billion by 2020 inclusive of debt taken for CPEC projects. Again, the writers used their own assumptions to arrive at this notional number against which no basis is provided by them. In fact, if the writers have referred to IMF's latest Staff Report on Pakistan, they would have a better idea that IMF is projecting external public debt at $62 billion by 2020 from its present level of $ 57.7 billion in four years' time indicating annual growth of below 2 percent. In fact, IMF debt sustainability analysis shows that external debt would remain on a downward trend over the medium term, with the peak in external financing needs under the most stressed scenario (3.7 percent of GDP) staying well below the risk assessment benchmark of 5 percent of GDP. Further, credit rating agencies in their recent reports acknowledged the fact that Pakistan external debt is on sustainable path and there is very little exposure to medium term vulnerabilities.
-- The writers took a myopic view of public debt management by quoting few debt numbers related to first five months of current fiscal year. Debt-related indicators should be considered in conjunction with medium-term scenarios as outlined in the MTDS, which allow the analysis of debt sustainability over time and under a variety of alternative assumptions. Therefore, the sole objective of quoting broken period information is to make sensations with the intention to mislead the public;
-- The writers claim that external borrowing has increased in the form of Sukuk Bonds and short-term loans from international commercial banks. In fact, commercial loans only accounted for 3 percent of external public debt as at end September, 2016. Even if issuance in international capital markets are considered, the share of commercial borrowing (commercial banks & Eurobonds) accounted for 11 percent of external public debt as at end September, 2016. Further, the news article failed to appreciate the fact that the government successfully priced its Sukuk at the rate of 5.5 percent, the lowest rate ever achieved by the government in the international capital market;
-- The writers are of the view that the right strategy for building a buffer of foreign exchange reserves is not through external borrowing but by promoting exports, remittances and FDI and by discouraging non-essential imports. In this regard, it is to be noted:
-- Government has taken number of initiatives for the promotion and facilitation of exports. To operationalize the trade policy, a total of Rs 6 billion has been allocated in the budget. Government has also unveiled the Strategic Trade Policy Framework (STPF 2015-18) to promote regional trade and focused on product sophistication and diversification, market access, institutional development and trade facilitation along with a bailout package for export sector to positively impact the textile sector. During December 2016, exports have shown an uptick in growth.
-- Similarly, remittances to Pakistan are still healthy if compared with other South Asian countries. The remittances improved by 1.46 percent in January 2017 on YOY. It is also pertinent to mention that development activities under Saudi Arabia's vision 2030, FIFA World Cup 2022 in Qatar, and Expo 2020 in Dubai may create demand for Pakistani workers, which can help increase flow of remittances in the country.
-- On the investment front, FDI has been more than double from US$ 0.9 billion in FY15 to US$ 1.9 billion in FY16. During Jul-Jan, FY17 FDI posted a significant growth of 9.9 percent. The CPEC program will further attract foreign direct investment going forward.
-- In addition, with the establishment of special economic zones (SEZs) planned under the China-Pakistan Economic Corridor (CPEC), foreign investments are expected to improve further. Pakistan's private sector involvement is also likely to enhance in building the infrastructure of power plants and road network. This would also boost Pakistan's productive capacity and expand the country's export base. As a result, Pakistan will generate incremental foreign exchange to service debt and equity investment.
The above facts clearly establish the fact that views mentioned in the news item regarding the state of public debt management in Pakistan are misleading. The present government has made remarkable gains in reducing debt burden of the country and improved the fiscal and debt sustainability indicators.
Copyright Business Recorder, 2017