The amendments have mainly eliminated the public sector debt ceiling targets and changed the definition of public sector debt from a gross to a net basis.
The Ministry of Finance have become masters in deception. Their contrived accounting practices on Public Sector Debt (PSD) have raised it to to new heights. Let me show you how !!!
Over time , we have got used to the gimmicks of the Ministry of Finance: when it cannot reach its debt target it either moves the goalpost some more years further down the road, manipulates the Public Sector Debt figures or adopt a more convenient definition that will lower the PSD figures.Now that Covid-19 is providing a good excuse, they are removing the goalpost itself. What next!!!
A statutory debt target of 50% of GDP under the Public Debt Management Act 2008, based on a local definition, was missed in 2013, and a first amendment to the PDMA postponed the debt deadline to Dec 2018. In a further amendment in June 2017, the local definition of public sector debt was replaced by a limited “international” definition, and the debt target was changed to 60% of GDP while the deadline was further postponed to end June 2021.
The public sector gross debt rather than net debt was established as the measure for the debt ceiling. The revised PSD measured the gross debt liabilities, without any netting of cash balances .The statutory PSD ceiling was therefore raised in the amended PDMA to 60% of GDP, to be met by 2021. For any one fiscal year, the statutory PSD ceiling was set at 65% of GDP.
In Dec 2018 PSD stood at 64.9% of GDP. However, a new adjustment item was added to the debt table, reducing PSD by Rs2.9 billion, or 0.6% of GDP. Without this adjustment, PSD would have exceeded 65% of GDP. This “consolidation adjustment” was an arbitrary concoction to underestimate the level of PSD.
In May 2019, when PSD had reached 65.3% of GDP, the Ministry of Finance started publishing both gross and net figures of PSD (net of Cash Balances of non-Financial Public Sector Bodies). At that time we had queried whether the publication of gross as well as net debt figures on the Finance ministry’s web site and the circular from the Financial Secretary for all Non-financial Public Sector Bodies to invest their surplus balances in the Treasury Certificates (These latter investments were to be netted out of the Gross Pubic Sector Debt figures ) were not moves on the part of the Ministry of Finance to redefine PSD in the PDMA not as gross but net debt . As they had calculated for December 2018, the “Gross Public Sector Debt” of 64.9 % of GDP became magically “Net Public Sector Debt” of 58.2% of GDP.
These are exactly what have been included in the amendments. Public sector debt (PSD) is now being defined on a net basis, i.e. gross Government debt minus the cash and cash equivalent holdings of Government and non financial public sector bodies (NFPSB), as well as their equity investments in any private sector entity. This will allow them to exclude short-term investments by NFPSB, (the Rs5 billion of CEB investment fore.g) and other equity investments. Another contrived accounting !!!
Moreover, they have now repealed the statutory PSD ceilings, expressed in terms of the ratio of PSD to GDP. (Why? when the PDMA allows for the postponement of the debt celing target during emergencies and natural disasters).
Exceptional times may need exceptional measures, but do you trust this government committing itself to a path of fiscal rectitude ? I do not , neither will the National Audit Office.
It will be business as usual for this regime with its prodigal ways and prestige projects now that the Minister is given a free hand to provide Govt guarantees without any consideration for the potential increase in PSD and that the Ministry of Finance will now have a recording instead of a monitoring role, with respect to PSD.
With the such amendments, who needs fiscal responsibility and discipline and compliance to accepted global standards of fiscal governance?
