PESHAWAR: The government of Khyber Pakhtunkhwa has passed legislation from the provincial assembly to provide sound fiscal risk management, fiscal and public debt sustainability and transparency in government finance statistics, public sector debts statistics and for related matters.
The Act called the KP Fiscal Responsibility and Debt Management Act, 2022 will be extended to the whole province and come into force at once. Principles and objectives of sound fiscal and debt management include identification of major fiscal risk, faced by government and the measures to mitigate these risks, sustainability of fiscal operations and public sector debts and transparency in government finance statistics and public sector debt statistics.
Under the sub-section 1 of the Act, the government will pursue its policy objectives in accordance with the sound fiscal responsibility and debt limitations.
The government may depart from the principles or limitations, specified under this Act, on grounds of unforeseen circumstances related to the financial requirements of the government due to exigencies of security or natural disaster, as determined by the government, but when government does so, any such departure be temporary and in accordance with the provisions of this Act, specify the reasons for departure from those principles or limitations, specify the approach or measures, government intends to take, to return to those principles or limitations; and specify the time period, government expects to take, to return to those principles or limitations.
Under the Act, the authority to borrow or give a guarantee will vest in the government. Notwithstanding anything sustained in any other law for the time being in force, all government borrowings and guarantees will be executed by the secretary of the department or by any other officer or government, specifically authorized by the government for this purpose.
The government may borrow or give guarantees for finance the fiscal deficit; repay, refinance, reschedule, restructure, prematurely retire or swap existing debt; meet temporary cash or liquidity needs during a financial year; make investment in financial assets; make investment in non-financial assets i.e. development expenditure; and any other purpose government may deem appropriate.
Under the law, the government will prepare a three year medium term fiscal framework, aligned with the medium-term national macro fiscal framework, approved in accordance with Fiscal Responsibility and Debt Limitation Act, 2005 (Act No. VI of 2005). This medium term fiscal framework will be published as part of the budget strategy paper of government. The medium-term fiscal framework will be updated every year; annual budget will be aligned with the medium-term fiscal framework.
The medium-term fiscal framework will include discussion of the national and provincial economic environment anticipated during the medium-term; revenue estimates, both from own-sources and federal transfer and grants; estimates of expenses and investment in non-financial assets; estimates of primary balance, fiscal balance and borrowing requirement; and medium-term projections of public debts and guarantees.
Under the statement of fiscal risks, the government will approve a fiscal risk statement on annual basis and present it to the provincial assembly of Khyber Pakhtunkhwa along with annual budget. The government will also approve a medium-term debt management for managing the public debt and guarantees, covering a minimum of three years, and may update it on annual basis in line with the medium-term fiscal framework.
The medium-term debt management strategy along with annual budget will be presented to the provincial assembly of Khyber Pakhtunkhwa.
Similarly, under fiscal limitations the government will take appropriate measures to ensure adherence to fiscal limitations. In any financial year, the government will not incur overall budget deficit of more than ten (10) percent of Average Revenue of the province and in any financial year, net investment in non-financial assets, will not be less than fifteen (15) percent of Average Revenue of the province.
Furthermore, under debt limitation, the government will manage total debt and guarantees in a manner that debt servicing, in a financial year, will not exceed ten (10) percent of the Average Revenue of the province. The combined stock of total public debt and guarantees does not, in any time, exceed One hundred and fifty (150) percent of the Average Revenue of the province.
The combined total stock of the total public debt, guarantees and pension liabilities will not, at any time, exceed four hundred (400) percent of the Average Revenue of the province and public corporations debt and guarantees will not exceed thirty (30) percent of the Average Revenue of the province.
Copyright Business Recorder, 2022
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