ISLAMABAD: The government on Wednesday indicated the possibility of a reduction in the debt-to-GDP ratio in the next few years as most major adjustments have been made in fiscal and monetary policies.
According to a spokesman for the Ministry of Finance, the change in public debt on July 1, 2018 and November 30, 2020 was due to the reform of economic policies, particularly the high exchange rate and excessive borrowing.
“Debt growth under the current government has increased mainly during FY19,” the finance ministry said in a statement, “an inevitable consequence of the former government’s misguided policies.” “If the previous government had maintained a market-based exchange rate, a sustainable level of current account deficit, adequate cash buffers and a long-term domestic debt profile, the current government would not have had to bear the burden of all these difficult adjustments and public debt.” And the increase in non-tax revenues and aggressive control over spending would have diminished the rewards of the current government’s financial stabilization efforts.
A ministry spokesman blamed previous governments for all the current economic woes.
“The previous government resorted to short-term lending instruments without maintaining a proper cash buffer, and the SBP relied heavily on borrowing. This short-term debt profile has resulted in higher interest costs on past loans. The present government has to pay Rs 5.7 trillion (47% of the increase) as interest on loans of previous governments, the spokesperson said.
“The previous government artificially maintained the rupee’s exchange rate far above its market value. The massive increase in public debt has led to a sudden drop in the exchange rate, which was inevitable as the excessive exchange rate balanced the repayment crisis. The only alternative to external responsibilities was default, which was obviously not an option. Due to the devaluation of this currency, public debt has increased by Rs. 3 trillion (25% of the increase).
A Finance Ministry official also blamed the high basic deficit for the tax cuts.
“Unnecessary tax cuts by the previous government have led to a reduction in the initial deficit as a result of the effects of the economic slowdown caused by the Cove 19 epidemic. During the first 29 months of the current government, Rs 2.5 trillion (21 per cent of the increase) was borrowed to finance the initial deficit, the official said. The government has increased its cash balance by 60 billion trillion rupees (an increase of 5%) to meet emergency needs. The present government has adopted an economically sound policy of not borrowing from the SBP and maintaining a cash buffer, which has led to a unilateral increase in debt. However, the increase in debt was offset by an increase in the government’s liquid cash balance. In addition, between the value of government bonds issued during this period (which is used to record debt) and its value (which is recorded as budget receipts) Rs. 0.3 trillion (about 2% of the increase) Was due. Duration
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