Effective Debt Management PRIME National Debt Conference 2015 Islamabad, December 12, 2015 1 Abdul Wajid Rana

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

22

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


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


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

88

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

99

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


NSS-PLINSS-PLI

Unfunded DebtUnfunded Debt FEBC/US FEBC/US $ Bearer $ Bearer

CertificateCertificate

GP FundGP Fund

On Tap- No On Tap- No ControlControl


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

1111

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

1515

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


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


• 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


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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Effective Debt Management PRIME National Debt Conference 2015 Islamabad, December 12, 2015 1 Abdul Wajid Rana