* Lower House informed that country’s debt was recorded at Rs 10.890tr by August 2011 up from Rs 5.799tr by March 2008
By Ijaz Kakakhel
ISLAMABAD: The Lower House on Friday was informed that the country’s debt was recorded at Rs 10.890 trillion by August 2011 from Rs 5.799 trillion by March 2008, showing a net increase of Rs 5.091 trillion or 87.79 percent since formation of the current government.
During the question-hour session, on behalf of the minister of finance, Minister of Textiles Makhdoom Shahabuddin told the House that the government borrows money to finance the gap between income and expenditure. This gap is being filled through domestic and external borrowings. External loans were obtained to finance various development projects in different sectors of economy. Foreign loans were also obtained for post-disaster reconstruction and budget support. As the government revenue is less than its expenditure, therefore borrowing of money from both sources would be a continuous phenomenon until revenue increases more than the expenditure.
He said the present government started off its term with inherited backlog of problems – deficits, energy shortages, power sector circular debt, security expenditure, resettlement of internally displaced persons, low growth and entrenched inflation. In addition, the country faced multiple adverse shocks of commodity and oil prices and fallout of global financial crises. The situation was further compounded by the unprecedented calamity of great floods.
Shahabuddin said these challenges posed by the aforesaid issues affected the pace of the reform process as the government was forced to make difficult trade-offs. The government was forced to intervene in the energy and commodity markets to keep prices from getting completely out of reach of the public. This burden of subsidies along with higher security-related expenditures exerted continuing pressure on the fiscal system and adjustment path was affected.
The repayments of loans are agreed at the time of negotiations and signing of loan agreements with the borrowers and being paid as per agreed schedules. Appropriate budget provisions are made accordingly. Besides government has adopted a policy of curtailing its avoidable expenditures. In addition it has recently introduced austerity measures, which interalia, include complete ban on new recruitment, purchases of assets etc and 20 percent budgetary cut on operative expenses.
To another question, Shahabuddin said the borrowing limit of the government reached 59 percent of the gross domestic product (GDP) while last limit is 60 percent. The government still could not cross the borrowing limit, allowed (60 percent of the GDP) under the law. Fiscal Responsibility and Debt Limitation Act (FRDLA) has made it mandatory for the government not to increase its borrowing over and above the 60 percent of GDP and in case it required more borrowing beyond this limit, it has to take approval from the parliament.
Answering another question, Shahabuddin said the last year’s devastated floods, which incurred $10 billion losses to the national exchequer was mainly responsible for higher volume of borrowing by the government. The current year’s floods in Sindh further aggravated the critical economic situation of the country.
Member National Assembly Dr Abdul Kadir Khanzada suggested that the government should take the parliament into confidence before making any more borrowing. He said the common people were suffering a lot from heavy burden of domestic and foreign loan. High rate of inflation broke the backbone of common people, he maintained. Responding to Khanzada, Shahabuddin said the government is concentrating on curtailing inflation pressure in the country.
The Ministry of Finance in written informed the House that the government-initiated public sector reforms are in progress and their impact upon common man will be estimated after its completion. The government is keeping a close watch on the movement of the prices of essential items through fortnightly Economic Coordination Committee (ECC) of the Cabinet meetings and suggests necessary steps for maintaining price stability. The ministry said the cabinet also reviews inflationary trend and prices of essential commodities in its meeting on fortnightly basis.
The National Price Monitoring Committee (NPMC) is also monitoring prices of essential commodities in consultation with provincial governments and concerned federal ministries/divisions and organisation.
The House was informed that the inflation rate during the financial year 2011-12 is lower than the financial year 2010-11 as inflation rate measured by consumer price index on yearly basis was 11 percent in October 2011 as against 15.3 percent in October 2010. This decline is due to various government measures including tight monetary policy as well as the decreasing trend in international prices of sugar, wheat, tea, palm oil and crude oil.