The National Assembly has passed the historic bill
— the fiscal responsibility and debt limitation bill aims at
elimination of revenue deficit and reduction of public debt to a
prudent level through effective public debt management.
Prime Minister Shaukat Aziz introduced the bill as
a finance minister in 2003 to put in place a sound fiscal discipline
and help Pakistan come out of its decade's old poor financial managed
system. The bill was so comprehensive and made such eminent sense that
the whole house including opposition had no particular grounds to
criticize it. Spelling out rationale and importance of the bill, Prime
Minister Shaukat Aziz observed that the fiscal responsibility and debt
limitation bill would help eliminate revenue deficit and reduce public
debt through effective debt management.
The legislation would ensure check and balance on
the financial management system and put the country on the road to
progress and economic development. Only four or five countries of the
world have such a law, basically designed to curtail unnecessary
borrowing. Once the bill came into force, only the national parliament
would have the authority to sanction directly needed borrowing from
the international agencies.
The State Minister for Finance, Omer Ayub Khan,
however, revealed that IMF and other international donor agencies had
resisted Pakistan's efforts to introduce 'fiscal responsibility and
debt limitation bill' meant to achieve fiscal discipline. Giving
reasons for opposition, Omer said that IMF and other major
international donors doubted Pakistan's capacity to take such a big
initiative. He gave credit of introducing the fiscal discipline to
Prime Minister Shaukat Aziz.
The bill makes mandatory for the government to
table its mid-term performance on economic front before the parliament
and get its clean chit for remaining six months of the fiscal year.
The new bill would help Pakistan strike a balance between expenditures
and revenue to reduce its fiscal deficit, he added.
The bill, as passed, will bind the government to
bring down the revenue deficit to zero by June 30, 2008 and maintain a
revenue surplus thereafter, reduce total public debt to 60 percent of
GDP by June 2013 and maintain it below this level in the subsequent
years. The public debt is to be reduced by not less than two and a
half percent of the estimated GDP for any given year with the added
proviso that social and poverty alleviation related expenditures would
not be allowed to fall below 4 percent of the GDP. To plug the
possibility of loopholes, it would be mandatory for the government not
to issue new guarantees, including those for rupee lending, bonds,
rates of return, output purchase agreements and all other claims and
commitments for any amount exceeding two percent of the estimated GDP.
Necessary provisions have also been incorporated in
the bill to keep the National Assembly fully informed about the
emerging scenario in the relevant fields. The government would be
responsible to file three statements each year to the parliament,
namely, the fiscal policy statement and the debt policy statement.
Mandatory presentation of these statements is meant to cover all areas
of fiscal and debt strategy and its outcome in a very detailed manner
on a regular basis. Transparency at all levels would be ensured
through comprehensive public disclosures. Deviations from the set
course could only be allowed in exceptional circumstances.
The passing of the present bill by the parliament
is, by any standard a landmark decision in the economic history of
Pakistan. If followed in letter and spirit, it could usher the country
into an era of responsible and sound economic management. High fiscal
deficits year after year were undoubtedly the basic cause of most of
the ills affiliating the economy and the present government has
definitely done something spectacular even at the cost of reducing in
its own powers for the sake of fiscal prudence. Some of the adverse
consequences of fiscal indiscipline the country suffered for years in
the past, included inflation, high interest rates, crowding out of
private sector credit and low growth, depreciation of the rupee, the
loss of reserves, allocation of large part of the budgetary revenues
for debt servicing and neglect of social sectors. Unfortunately,
successive governments in Pakistan continued to indulge in profligacy
for political expediency without caring for its after effects. Such an
irresponsible behaviors had to be stopped somehow and the present
dispensation can rightly claim the credit for introducing a bill,
which has all the elements of bringing sanity in the fiscal management
of the country.
The reading of the bill makes it clear that the
government has put in a lot of effort in drafting. No unnecessary
freedom to the economic managers, present or future, has been given to
sidetrack the basic obligations of fiscal prudence. On the other hand,
the bill would add to the responsibilities, accountability and
transparency of the financial management of the country. This was
extremely essential after discontinuation of the IMF programme, which
always obliged the governments to live within the parameters of a
given fiscal discipline. Once this condition was relaxed, future
government could again revert to the old ways of extravagance with the
attendant horrendous consequences.
The most outstanding feature of the bill is its
promise and potential to save future generations from the curse of
mounting debt and for this they would always be thankful to the
present government and Prime Minister Shaukat Aziz in particular, who
as the finance minister spearheaded this effort.