Clarification – Reference news items published in national press containing comments of former Finance Minister Dr. Hafeez Pasha

Islamabad, May 09, 2014 (PPI-OT): Reference new items published on May 08th 2014, in the national press, containing comments of former Finance Minister Dr. Hafeez Pasha made while speaking at an event on budget proposals organized by the Institute for Policy Reforms.

The comments and conclusions drawn were not only based on inaccurate facts and figures but also contained assumptions dependant on future transactions without taking into account the repayments of loans being made regularly.

We must not forget that the present government started off its term with inherited challenges including large fiscal deficit, unfavorable balance of payment position, depleting foreign exchange reserves, limited revenue base, rising current expenditures, circular debt, energy crises, flight of capital and shaken investor’s confidence. Add to it Pakistan needed to pay off the due repayments to IFIs including IMF.

The statement regarding signing/loan agreements amounting to US$ 52 billion presents one side of the picture. It is worth mentioning that borrowing is beneficial for economic development of any country as long as it is undertaken to facilitate the well thought out road map devised with due diligence.

As the above mentioned borrowing will be mostly done for the development purposes and BoP support and that too on concessional terms, it will accelerate the pace of economic growth and help the government to accomplish its social and developmental goals.

These loans are expected to remove the structural bottlenecks which are hindering the development of the economy like energy crises. Dr. Pasha has already endorsed the government plan to revive the energy sector as most of the current borrowing is done to overcome the energy crises. These loans will promote economic development and bring prosperity to the future generations instead of exerting dire consequences.

It is most important to mention that Mr. Pasha ignores the fact that the government is required to repay over US$ 30 billion in next 10 years while maintaining sufficient foreign exchange reserves. The said amount will result in reduction in public debt stock.

Moreover, the above mentioned loans would be disbursed over next 3 to 7 years and not a part of public debt today, therefore, presently the government is not in violation of Fiscal Responsibility and Debt Limitation Act, 2005

Regarding Dr. Pasha’s suggestion that the government should prepare a detailed medium term action plan to come up within the limits imposed by the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005, the government has already taken appropriate measures in this regard through; Medium Term Budgetary Statement (2013-14 – 2015-16) and Medium Term Debt Management Strategy (2013-14 – 2017-18).

Medium Term Budgetary Statement (2013-14 – 2015-16) was presented to the National Assembly along with the budget 2013-14. According to said statement, the public debt to GDP is projected to be brought down to 55.2 percent by 2015-16.

The government has also developed its first Medium Term Debt Management Strategy (MTDS) to ensure that both the level and rate of growth in public debt is fundamentally sustainable and can be serviced under different circumstances while meeting cost and risk objectives.

The MTDS contains a policy advice on an appropriate mix of financing from different sources with the spirit to uphold the integrity of the Fiscal Responsibility and Debt Limitation Act, 2005. In accordance with MTDS public debt to GDP ratio is expected to be around 52 percent by end of 2017-18 which is well below the threshold of 60 percent as mentioned in Fiscal Responsibility and Debt Limitation Act, 2005.

It may be mentioned that there is no overall debt increase. As a result of the external financing, the Government of Pakistan has off loaded a proportionate domestic debt. Moreover, the rate of interest on domestic borrowing is over 12% per annum. Whereas, the external borrowing has been made on a minimal interest rate. It has saved Government of Pakistan a huge amount on account of interests only.

Misplaced notions like mortgaging generations etc sounds like political rhetoric but does not comensurate with the well established robust relationship between growth, financial stability and foreign capital inflow.

Moreover, FDI inflows are positively associated with economic growth, especially when exchange rates are stable and monetary policy independent. This is what the government aims for in the medium to long term economic policies.

For more information, contact:
Director General (Media)
Naveed Iqbal
Ministry of Finance
Government of Pakistan
Room # 514, Block-’Q’, Finance Division,
Pak. Sectt. Islamabad
Phone: 92 51 9206382, 9211707
E-mail: naveed.iqbal377@gmail.com