effective debt management prime national debt conference 2015 islamabad, december 12, 2015 1 abdul...
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Effective Debt Management
PRIME National Debt Conference 2015 Islamabad, December 12, 2015
11
Abdul Wajid RanaAbdul Wajid Rana
Layout of this PresentationLayout of this Presentation
• Principles of Fiscal and Debt Management
• Assessment of FRDLL Performance
• Design Shortcomings
• Debt Management: Current Practice
• Recommendations
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Principles of Fiscal & Debt ManagementPrinciples of Fiscal & Debt Management
Reduce Revenue Balance to zero by June 30, 2008 and thereafter maintaining a revenue surplus
Reducing Public Debt by 2.5% of GDP to bring it down to 60% of GDP by June 30, 2013 and thereafter maintaining it below 60%
Social and Poverty alleviation expenditures shall not be reduced below 4.5% of GDP annually
Budgetary Allocation for Education and Health to double by 2013 from 2005 level of 2.5% of GDP
Principles of Fiscal & Debt ManagementPrinciples of Fiscal & Debt Management
Issuance of New Guarantees including renewals not to exceed beyond 2% of GDP
Escape Clause-National Security or Natural Calamity
• Such Departure should be temporary
• Finance Minister to give reasons & measures with time line to revert to stipulated path
Sanction—Reputation but no penalty
Principles of Fiscal & Debt ManagementPrinciples of Fiscal & Debt Management
Public Disclosure in January and June every year
- Fiscal Policy Statement
- Debt Policy Statement
- Medium Term Budgetary Statement
Statements of Responsibility by the Finance Minister and Secretary Finance
Establishment of DPCO
Debt Management by GOPDebt Management by GOP
FRDL Target Actual for Financial Year
Target Date 2008 2009 2010 2011 2012 2013 2014 2015
Revenue BalanceRevenue Balance 0By
6/30/2008 -3.5 -1.7 -1.9 -3.7 -2.8 -3.1 -1.5* -1.7*
Public DebtPublic Debt(as % of GDP)(as % of GDP)
< 60By
6/30/2013 59.7 59.5 61.3 59.4 63.7 63.0 64.9 64.6
Reduction in Reduction in Public Debt/GDPPublic Debt/GDP
2.5 < Annually -3.9 -1.0 -1.9 1.9 -4.3 0.7 -1.9 0.3
PRSP ExpPRSP Exp(as % of GDP)(as % of GDP)
4.5 < Annually 6.3 6.6 6.5 7.4 8.7 7.4 7.7 7.9
Education & Education & Health Exp/GDPHealth Exp/GDP
DoubleBy
6/30/2013 2.4 2.5 2.4 2.3 2.6 2.8 2.9 3.0
New government New government guaranteesguarantees(as % of GDP)(as % of GDP)
2.0 Annually 1.3 2.1 1.5 0.3 1.0 0.6 0.4 0.6
Total Loan Contracted ($ Million)Total Loan Contracted ($ Million)Year PPP PML (N)
Bilateral/Multilateral
IMF Bilateral/ Multilateral
IMF
FY2009 4,797.9
FY2010 4,564.7 7,400
FY2011 2,738.1
FY2012 4,018.1
FY2013 1,277.6
FY2014 13,165 6,640
FY2015 3,633
FY2016 1,500
Total 17,396.4 7,400 18,298 6,640
Transparency Issues
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Authority Public Debt Definition
MOFMOF Government Domestic & External Debt and IMF debt
SBPSBP Government Domestic & External Debt, IMF debt and External LiabilitiesExternal Liabilities
Off-Budget DebtOff-Budget Debt Private Sector External Debt, PSEs domestic and External Debt, Commodity Operations, Intercompany External Debt from direct investor abroad
Recent ChangeRecent Change Non-Plan Debt Excluded from Public Debt
Total Debt & Total Debt & Liabilities of Liabilities of PakistanPakistan
FY2014 (72.7%), FY2015 (72.5%)FY2015 Q1 (67.5%)
Domestic Debt ManagementDomestic Debt Management
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Permanent DebtPermanent Debt
Market LoansMarket Loans
Floating DebtFloating Debt
FG Bonds/FG Bonds/
40% of total40% of total
T-Bills on TapT-Bills on Tap
MTBs-AuctionMTBs-Auction
Managed Managed Managed/Need Managed/Need
BasisBasis
37% of total37% of total
NSS-PLINSS-PLI
Unfunded DebtUnfunded Debt FEBC/US FEBC/US $ Bearer $ Bearer
CertificateCertificate
GP FundGP Fund
On Tap- No On Tap- No ControlControl
20% of total20% of total
Commodity Commodity OperationOperation
3% of 3% of totaltotal
On Tap On Tap
Public Debt Management IssuesPublic Debt Management Issues
Off-budget Non-Plan Guaranteed Debt
No Borrowing Limits by NEC- Article 167 (4)
Role of CCI (Supervision and Management of Public Debt)
Role of Monetary and Fiscal Coordination Board
Subservient DPCO
Borrowing for External Debt Servicing and not Capital Investment
Debt Management: Current PracticeDebt Management: Current Practice
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Institutional fragmentationsInstitutional fragmentations inhibits effective debt inhibits effective debt ManagementManagement
Net Transfers As % of GNINet Transfers As % of GNIYear Net Flows
(US $ M)Net Transfers
(US $ M)Net Flows/
GNI%Net
Transfers/ GNI%
1970 433 369 4.3 3.6
1980 1,021 819 4.0 3.2
1990 1,228 778 2.9 1.9
2001 1,149 431 1.7 0.8
2010 2,966 2109 1.6 1.1
2013 -2,546 -3,479 -1.1 -1.4
2014 4,760 3,745 1.65 1.3
88thth Review of EFF Review of EFF MoF will seek Fund’s advice to:
Strengthen FRDL Act
Provide Medium-Term Orientation of the budget process
Policy Coordination across all layers of government
To improve policies and procedures for government
guarantees and risk management
Seek Technical Assistance
Systematically account for fiscal costs and contingent
liabilities associated with the broader PSEs, PPPs and SPVs
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RecommendationsRecommendations Organizational Framework
• Debt Management Objectives and Borrowing Purposes
• Financing the deficit
• Re-financing the outstanding debt
• Support to the balance of Payment
• Capital Expenditure Investment
• Fostering the development of the financial markets
• Supporting Monetary Policy Objects (Draining Liquidity
• Stipulation of Golden Rule: Brazil and UK
• Debt Management Coordination
• Transparency and Accountability
• Institutional Framework1414
RecommendationsRecommendations
Analytical Framework
• Debt Management Strategy
• Risk Management Framework
Operational Framework
• Efficient Market for Government Securities
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Public Debt Management StrategyPublic Debt Management Strategy
1616
Medium Term Medium Term Debt Debt
Management Management StrategyStrategy
Cost and Risk Cost and Risk AnalysisAnalysis
Macroeconomic Macroeconomic & Macro-Fiscal & Macro-Fiscal
FrameworkFramework
Information on Information on Cost and RiskCost and Risk
Demand Demand ConstraintsConstraints
Debt Debt Management Management DevelopmentDevelopment
Consistency/ Consistency/ ConstraintsConstraints
ConstraintsConstraints
Information Information on Cost and on Cost and
RiskRisk
RecommendationsRecommendations
Role of CCI
Role of NEC
Role of MFCB
Add Expenditure Rule (adjusting expenditures both at federal and provincial level in case revenues fall short of target determined under the Revenue Rule)
Golden Rule (Brazil, UK)1717
RecommendationsRecommendations
• Escape clause be made more stringent and there should be Parliamentary Oversight mechanism to ensure adjustment of deviation within stipulated time frame
• Add a clause for mandatory debate in the Parliament on Government’s Policy Statements and Parliament to give its observations
• Borrowing Limits for the Provinces1818
RecommendationsRecommendations
1919
Revenue Share under
7th NFC Award
Borrowing Limit
(in terms of GDP)
Borrowing Envelope
(Rs. Billion)
Punjab 51.74% 0.26% 79.3
Sindh 24.55% 0.12% 37.6
Khyber Pakhtunkhwa
14.62% 0.07% 22.4
Balochistan 9.09% 0.05% 13.9
Total 100% 0.5% 153.4
Recommendations-InstitutionalRecommendations-Institutional
2020
• Consolidating Debt Management and Consolidating Debt Management and making DPCO as Independent Office as making DPCO as Independent Office as envisaged in the lawenvisaged in the law
Timing Initiatives to improve institutional Timing Initiatives to improve institutional arrangements & arrangements &
Capacity Capacity
StartStartImmediately Immediately
- - - - - - - - - -- - - - - - - - - -
~ 3 Years~ 3 Years Full Fledged Debt Management Full Fledged Debt Management
OfficeOffice Decision Making Power for all Decision Making Power for all
government debt government debt
Central Debt Management UnitCentral Debt Management Unit Fast Track T.A. for building debt Fast Track T.A. for building debt
management capacitymanagement capacity Close Coordination with CDNS, EAD, EF Close Coordination with CDNS, EAD, EF
& SBP& SBP Operating under an Advisory Operating under an Advisory
Board or FM as originally Board or FM as originally envisagedenvisaged
Thank YouThank You
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