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

Layout of this Presentation Principles of Fiscal and Debt Management Assessment of FRDLL Performance Design Shortcomings Debt Management: Current Practice Recommendations

Principles 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 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 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

Actual for Financial Year Debt Management by GOP   FRDL Target Actual for Financial Year Target Date 2008 2009 2010 2011 2012 2013 2014 2015 Revenue Balance By 6/30/2008 -3.5 -1.7 -1.9 -3.7 -2.8 -3.1 -1.5* -1.7* Public Debt (as % of GDP) < 60 By 6/30/2013 59.7 59.5 61.3 59.4 63.7 63.0 64.9 64.6 Reduction in Public Debt/GDP 2.5 < Annually -3.9 -1.0 1.9 -4.3 0.7 0.3 PRSP Exp 4.5 < 6.3 6.6 6.5 7.4 8.7 7.7 7.9 Education & Health Exp/GDP Double 2.4 2.5 2.3 2.6 2.8 2.9 3.0 New government guarantees 2.0 1.3 2.1 1.5 1.0 0.6 0.4

Total Loan Contracted ($ Million) Year PPP PML (N) Bilateral/ Multilateral IMF Bilateral/ Multilateral 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 18,298

Transparency Issues Authority MOF SBP Off-Budget Debt Recent Change Public Debt Definition MOF Government Domestic & External Debt and IMF debt SBP Government Domestic & External Debt, IMF debt and External Liabilities Off-Budget Debt Private Sector External Debt, PSEs domestic and External Debt, Commodity Operations, Intercompany External Debt from direct investor abroad Recent Change Non-Plan Debt Excluded from Public Debt Total Debt & Liabilities of Pakistan FY2014 (72.7%), FY2015 (72.5%) FY2015 Q1 (67.5%)

Domestic Debt Management Permanent Debt Floating Debt Unfunded Debt FEBC/US $ Bearer Certificate Market Loans NSS-PLI T-Bills on Tap Commodity Operation GP Fund FG Bonds/ MTBs-Auction 40% of total 37% of total 20% of total 3% of total Managed/Need Basis On Tap- No Control On Tap Managed

Public 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 Practice Institutional fragmentations inhibits effective debt Management Ministry of Finance Finance Division Budget Wing (MTBs, PIBs, Sukuks) External Finance Wing (Eurobond, FX Commercial Borrowing) Debt Policy Coordination Office (Coordination, Monitor & Analyze Central Directorate of National Savings (NSS) Economic Affairs Division (PPG-WB, ADB, IDB Paris Club, Other Bilateral) State Bank of Pakistan (Govt Agent for MTBs, PIBs & Sukuks

Net Transfers As % of GNI Year Net Flows (US $ M) Net Transfers 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

8th 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

Recommendations 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 Framework

Recommendations Analytical Framework Operational Framework Debt Management Strategy Risk Management Framework Operational Framework Efficient Market for Government Securities

Public Debt Management Strategy Macroeconomic & Macro-Fiscal Framework Debt Management Development Information on Cost and Risk Consistency/ Constraints Medium Term Debt Management Strategy Demand Constraints Constraints Information on Cost and Risk Cost and Risk Analysis

Recommendations 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)

Recommendations 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 Provinces

Recommendations Revenue Share under 7th NFC Award   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-Institutional Consolidating Debt Management and making DPCO as Independent Office as envisaged in the law Timing Initiatives to improve institutional arrangements & Capacity Start Immediately - - - - - - - - - - ~ 3 Years Full Fledged Debt Management Office Decision Making Power for all government debt Central Debt Management Unit Fast Track T.A. for building debt management capacity Close Coordination with CDNS, EAD, EF & SBP Operating under an Advisory Board or FM as originally envisaged

Thank You