finance
Editorial

Public finance Issues

Public finance management in Pakistan has always been in a mess. According to a report, the International Monetary Fund has asked Pakistan to adopt a new legal framework for public finance management, aimed at stopping the country from borrowing recklessly and ensuring strict oversight of parliament on unchecked expenditure. IMF’s proposal came during the on-going talks under the umbrella of Post Programme Monitoring (PPM). But the federal government is said to be not willing to accept any such proposal because it thinks that it will be hamstrung in dealing with financial matter.
It is relevant to mention here that the IMF’s position is in line with the views of the World Bank which has pegged disbursement of a $400-million loan to the approval of the draft Public Finance Management Bill 2017 from the National Assembly. The Board of Directors of the World Bank is set to approve the $400-million loan this month but its release will be linked with the initiation of the process to get the bill approved. The major idea behind the new proposed public finance management regime is that the government will not borrow more than the limit set out in the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005 for the debt reduction path.

Global financial institutions are of the view that the federal government may raise loans only for the purpose of financing its budget deficit, refinancing maturing public debt, obtaining foreign currency loans, furthering prudent fiscal and monetary policies, onwards lending to an approved institution and paying legally mandated expenditures. But a new clause in the proposed legal regime says that the net amount that the Ministry of Finance may borrow should not exceed the amount set out in the debt reduction path being set out in the FRDL Act of 2005. As of June 2017, the gross public debt was Rs21.4 trillion or equal to 67.2% of the GDP – way above the statutory limit. The breach occurred despite the fact that the federal government twice amended the definition of public debt in the past two years.

In this context, the Ministry of Finance has also misused the supplementary budget. The finance ministry has used this avenue to buy luxury cars, pay subsidies to sugar barons and finance the expenditures that it deliberately understates at the time of the new budget’s approval to hide the actual budget deficit. The sources said that global lenders also wanted to place checks and balances on this account. In the same vein, the global lenders wanted Pakistan to discontinue the supplementary budget method. The World Bank wants to correct the flaws in the current public finance management system through a billion-dollar programme. There is a consensus of opinion among experts that the government should not miss the opportunity to strengthen its budgetary and fiscal systems.

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Mian Bilal