Parliament to approve loans above $500 million

ISLAMABAD: A special panel of the National Assembly is likely to table loan agreements with a ceiling limit of over $500 million funded by the IMF, World Bank and Asian Development Bank before the Parliament for approval.

The government also informed the special committee – constituted by the Parliament on domestic and foreign loans under chairperson, Shahnaz Wazir Ali, – that it would table a package before the Council of Common Interest (CCI) for placing binding constraints on provinces to share the burden of public debt exceeding 60 percent of Gross Domestic Product (GDP).

“There is need to place binding constraints on provinces for revenue mobilisation targets, amending FRDLA 2005 by imposing restriction on primary deficits besides revenue deficits, define a new threshold related to outstanding stock of contingent liabilities and strengthen debt management function on operational lines,” said Ministry of Finance Director General, Masroor Ahmed Qureshi, at the Parliament House on Tuesday.

PML-N MNA, Ehsan Iqbal, proposed third party evaluation on spending of loans. According to data presented by the government, total public debt stood at Rs390 billion in 1985 and surged to Rs3,172 billion by 1999-2000 when Musharraf took over. Public debt went up to Rs6,053 billion by the end of FY2008. In the last five year rule of the PPP-led government, public debt doubled and has crossed Rs12,662 billion by the end of FY2012.

On the issue of loans obtained by the provinces on the basis of sovereign guarantee given by the federal government, there were differences of opinion among the members of the committee. Secretary EAD, Javed Iqbal, pointed out that after the 18th amendment it would be an infringement on provincial autonomy, binding them to get ratified by Parliament. Ehsan Iqbal recommended that the respective provincial assemblies should ratify such loan agreements and these should only be notified to the Parliament for the sake of information. He also recommended that the government present a quarterly report in those loan cases where the center had given sovereign guarantees.

While giving reasons for increased burden of public debt, the Finance Ministry informed the committee that a higher deficit was a big reason for the rise in public debt as in the last four year the deficit stood at an average of 6.12 percent of GDP. Citing other reasons for higher debt, Qureshi said that resettlement of Internally Displaced Persons (IDPs), devastating floods, higher international oil prices, food and energy subsidies, higher security and payments related to past obligations had contributed to the rise in public debt.

Qureshi said that the previous government did not increase the electricity tariff substantially and that piled up liabilities, resulting in circular debt. Hence the present government had to clear the backlog of Rs120 billion and Rs313 billion in FY 2011 and FY 2012, respectively. The Defense Saving Certificate matured in 2008-2009 and with that a sum of Rs400 billion was repaid.

When the committee members raised the issue of lower fiscal deficits in the range of 2.3 percent, 3.3 percent an and 4.3 percent of GDP in 2003-2004, 2004-2005 and 2005-2006 respectively, Qureshi said that debt rescheduling granted by Paris Club, missing out of subsidies and lower defense expenditures, were the major reasons for this. However, this response did not satisfy the members of the committee.

A senior official of Planning Commission rescued the economic team by apprising the committee that the government rebased the GDP that resulted in lowering of the budget deficit and public debt as a percentage of GDP.

The committee also directed Deputy Chairman Planning Commission Dr Nadeem Ul Haq to present an independent view on the rising debt phenomena in the next meeting that is to take place on January 24, 2013.

Posted in: Business news