The Fiscal Responsibility and Debt Limitation Act, 2005

¹[An Act to provide for reduction of Federal fiscal deficit and ratio of public debt to gross domestic product to a prudent level by effective public debt management

WHEREAS it is expedient to provide for reduction of Federal fiscal deficit and ratio of public debt to gross domestic product to a prudent level by effective debt management and for matters connected therewith and incidental thereto;

It is hereby enacted as follows:—]¹

CHAPTER I
PRELIMINARY

1. Short title, extent and commencement.
(1) This Act may be called the Fiscal Responsibility and Debt Limitation Act, 2005.

(1) It extends to the whole of Pakistan.

(2) It shall come into force at once.

2. Definitions.
In the Act, unless there is anything repugnant in the subject or context,—

(a) “annual budget statement” means the annual statement of the estimated receipts and expenditures of the Federal Government laid before the National Assembly under Article 80 of the Constitution ¹[of the Islamic Republic of Pakistan]¹;

(b) ¹[* * * * * * *]¹

²[(c) “debt reduction path” means the report on debt reduction path prepared with approval of the Federal Government;]²

²[(ca) “debt-to-GDP ratio” means total public debt at the end of a financial year divided by gross domestic product during the same financial year;]²

(d) “economic policy statements” means the economic, fiscal and debt policy statements specified in sub-section (1) of section 4;

(e) “fiscal indicators” means the measures such as numerical ratios and proportions to gross domestic product or revenues for evaluation of the fiscal position of the Government as may be prescribed;

²[(f) “guarantee” means a contingent financial liability undertaken by the Government to pay the financial liability of a third party in the event when the third-party defaults on that financial liability;]²

³[(g) “Minister” means the Federal Minister for Finance or any Minister entrusted with the responsibility for federal public finances by the Prime Minister of Pakistan;]³

³[(h) “office” means the debt management office established under section 12;]³

(i) “prescribed” means, except where otherwise provided, prescribed by rules made under this Act;

(j) “principles of sound fiscal and debt management” means the principles of sound fiscal and debt management specified in section 3;

⁴[(k) “Federal fiscal deficit” means the difference between total net revenue receipts and total expenditure of the Federal Government;]⁴

(1) ⁴[* * * * * * *]⁴

⁴[(m) “total expenditure” means a sum of total recurrent expenditure, development expenditure and net lending of the Federal Government;]⁴

(n) ⁴[* * * * * * *]⁴

⁴[(o) “total public debt” means the debt of the Government (including the Federal Government and the Provincial Governments) serviced out of the Consolidated Fund and debts owed to the International Monetary Fund;]⁴

⁵[Explanation.—Total debt of the Government is public debt less accumulated deposits of the Federal and Provincial Governments with the banking system.]⁵

(p) “total revenue” means a sum of tax revenues, non-tax revenues and surcharges of the Government ³[; and]³

⁴[(q) “total net revenue of Federal Government” means a sum of tax revenues, non-tax revenues and surcharges of the Government minus transfer of provincial share.]⁴

CHAPTER II
PRINCIPLES OF SOUND FISCAL AND
DEBT MANAGEMENT

3. Principles of sound fiscal and debt management.
(1) Subject to sub-section (4), the Federal Government shall pursue its policy objectives in accordance with the principles of sound fiscal and debt management specified in sub-section (3).

⁴[(2) The Federal Government shall take all appropriate measures to reduce the Federal fiscal deficit excluding foreign grants and ratio of total public debt to gross domestic product and maintain it within prudent limits thereof.]⁴

(3) In particular and without prejudice to the generality of the foregoing provisions, the following shall be the principles of sound fiscal and debt management, namely:—

⁶[(a) limiting the Federal fiscal deficit excluding foreign grants to four percent of gross domestic product during the three years, beginning from the financial year 2017-18 and maintaining it at a maximum of three and a half percent of the gross domestic product thereafter;

(b) ensuring that within a period of two financial years, beginning from the financial year 2016-17, the total public debt shall be reduced to sixty percent of the estimated gross domestic product;

(c) ensuring that within a period of five financial years, beginning from the financial year 2018-19 total public debt shall be reduced by 0.5 percent every year and from 2023-24 and going up to financial year 2032-33 a reduction of 0.75 percent every year to reduce the total public debt to fifty percent of the estimated gross domestic product and thereafter maintaining it to fifty percent or less of the estimated gross domestic product; and]⁶

(d) not issuing new guarantees, including those for rupee lending, bonds, rates of return, output purchase agreements and all other claims and commitments that may be prescribed, from time to time, for any amount exceeding two per cent of the estimated gross domestic product in any financial year:

Provided that the renewal of existing guarantees shall be considered as issuing a new guarantee ⁷[:]⁷

⁷[Provided further that the total stock of outstanding guarantees shall not exceed ten percent of estimated GDP.

Explanation.— For the purpose of this clause, each guarantee shall be valued at its risk-weighted value in accordance with a valuation methodology to be prescribed.]⁷

(4) The Federal Government may depart from the principles of sound fiscal and debt management on the ground or grounds of unforeseen demands on the finances of the Government ⁷[****]⁷ as determined by the National Assembly, but when the Federal Government does so—

(a) any such departure shall be temporary; and

(b) the Minister shall, in accordance with the provisions of this Act, specify—

(i) the reasons for the Federal Government’s departure from those principles;

(ii) the approach or measures the Federal Government intends to take to return to those principles; and

(iii) the period of time that the Federal Government expects to take to return to those principles.

CHAPTER III
ECONOMIC POLICY STATEMENTS

4. Economic policy statements to be laid before the National Assembly.
(1) The Federal Government shall, in each year, cause to be laid before the National Assembly, the following statements of economic, fiscal and debt policy, namely:—

(a) the medium term budgetary statement;

(b) the fiscal policy statement; and

(c) the debt policy statement:

⁸[Provided that where the National Assembly is not in session, the statements may be laid in the next session even if it occurs after the end of the period specified in sub-section (2).]⁸

(2) The economic policy statements specified on sub-section (1) shall cause to be laid before the National Assembly by the end of the period specified in sections 5, 6 and 7.

(3) The economic policy statements shall be in such form as may be prescribed from time to time by the Federal Government.

5. The medium term budgetary statement.
(1) The Federal Government shall include a medium term budgetary statement, consistent with the principles of sound fiscal and debt management, in the annual budget statement to be laid before the National Assembly each year not later than the thirtieth day of June of each financial year.

(2) The medium term budgetary statement shall set forth a three year rolling target for economic indicators.

(3) In particular and without prejudice to the provisions contained in sub-section (2), the medium term budgetary statement shall, for the financial year commencing on the first day of July and the two financial years following that financial year,—

(a) indicate explicitly, by the use of ratios or other means the Federal Government’s intentions regarding economic indicators including those specified in sub-section (2) of section 6; and

(b) specify clearly key fiscal measures and risks that the Federal Government considers important and against which fiscal policy will be set and assessed.

6. The fiscal policy statement.
(1) The Federal Government shall cause to be laid before the National Assembly the fiscal policy statement by the end of January each year.

(2) The fiscal policy statement shall, inter alia, analyze the following key macroeconomic indicators, namely:—

(a) total expenditures;

⁹[(b) total net revenue receipts;]⁹

(c) total fiscal deficit;

⁹[(d) total Federal fiscal deficit excluding foreign grants; and]⁹

(e) total public debt.

⁹[(f) debt per capita.]⁹

(3) The Federal Government shall explain how fiscal indicators accord with the principles of sound fiscal and debt management.

(4) The fiscal policy statement shall also contain—

(a) the key fiscal measures and rationale for any major deviation in fiscal measures pertaining to taxation, subsidy, expenditure, administered pricing and borrowing;

(b) an update on key information regarding macroeconomic indicators;

(c) the strategic priorities of the Federal Government for the financial year in the fiscal area;

(d) the analysis to the fullest extent possible of all policy decisions made by the Federal Government and all other circumstances that may have a material effect on meeting the targets for economic indicators for that fiscal year as specified in the medium term budgetary statement; and

(e) an evaluation as to how the current policies of the Federal Government are in conformity with the principles of sound fiscal and debt management and the targets set forth in the medium term budgetary statement in section 5.

7. The debt policy statement.
(1) The Federal Government shall cause to be laid before the National Assembly, the debt policy statement by the end of January each year.

(2) The purpose of the debt policy statement is to allow the assessment of the Federal Government’s debt policies against the principles, of sound fiscal and debt management and the debt reduction path.

(3) In particular and without prejudice to the provisions of sub-section (2) the debt policy statement shall, inter alia, contain—

(a) assessment of the Federal Government’s success or failure in meeting the targets of total public debt to estimated gross domestic product for any given year as specified in the debt reduction path;

(b) evaluations of external and domestic borrowing strategies and provide policy advice on these strategies;

(c) ¹⁰[* * * * * * *]¹⁰

(d) analysis of the foreign currency exposure of Pakistan’s external debt;

¹⁰[(e) consistent and authenticated information on public and external debt and guarantees issued by the Federal Government;]¹⁰

(f) information of all loan agreements contracted, disbursements made thereof and repayments made thereon, if any, by the Government during the fiscal year; and

(g) analysis of trends in public debt and external debt and steps taken to conform to the debt reduction path as well as suggestions for adjustments, if any, in the Federal Government’s overall debt strategy.

¹¹[7A. Medium-term national macro fiscal framework.
(1) The Finance Division shall prepare medium-term national macro fiscal framework, covering aggregate fiscal projections specially revenues, expenditures and primary balances of the upcoming fiscal year and the two outer years in respect of Federal Government, Provincial Governments and other areas of Pakistan; which shall be presented not later than the l5th day of March of the ongoing fiscal year to the National Finance Commission (NFC) Monitoring Committee.

(2) The approved medium term national macro fiscal framework shall be published in the budget strategy papers and annual budget statements of the Federal, Provincial and other governments as part of their budget documents.]¹¹

8. Disclosure of policy decisions and other matters.
(1) Subject to sub-section (3), every economic policy statement prepared under this Act shall incorporate to the fullest extent possible all Federal Government decisions and all other circumstances that may have a material effect on the fiscal and economic situation of the country.

(2) Where the fiscal implications of Federal Government decisions and other circumstances referred to in sub-section (1) can be quantified for particular years with reasonable certainty by the day on which the statements are finalized, the quantified fiscal implications of those Government decisions and other circumstances shall be incorporated in the statements.

(3) Nothing in sub-sections (1) and (2) shall apply to a decision or circumstance where the Minister determines that to incorporate that decision or circumstance in an economic policy statement is likely to—

(a) prejudice the substantial economic interests of Pakistan;

(b) prejudice the security or defence of Pakistan or its international relations;

(c) compromise the Federal Government in a material way in negotiation, litigation or commercial activity; or

(d) result in material loss of value to the Federal Government, and there is no reasonable or prudent way the Federal Government can avoid this prejudice, compromise or material loss.

9. Measures to enforce compliance.
Notwithstanding anything in sub-section (4) of section 3, if the Federal Government continuously fails to meet the target of debt to gross domestic product ratio specified in the debt reduction path for any given year over the period of two financial years starting from the first statement which indicates the failure of the Federal Government in meeting the prescribed target, the Federal Government shall take all necessary measures including the curtailment of the sums authorised to be paid and applied from, and out of, the Federal Consolidated Fund to return to the debt reduction path latest by the end of the next two financial years:

¹²[Provided that nothing in this section shall apply to the expenditure charged upon the Federal Consolidated Fund.]¹²

10. Statement of responsibility.
(1) ¹²[Every statement prepared under sections 5, 6 and 7 shall include—]¹²

(a) a statement by the Minister that all policy decisions with material economic or fiscal implications that the Federal Government has made before the day on which the contents of the economic policy statements were finalized and all other circumstances with material economic or fiscal implications of which the Minister was aware before that day have been communicated to the Secretary of Finance; and

(b) a statement by the Secretary of Finance that the Ministry has supplied to the Minister, using its best professional judgment on the basis of economic and fiscal information available to it before the day on which the contents of the economic policy statements were finalized, an economic and fiscal statement incorporating the fiscal and economic implications of those decisions and circumstances, but any decisions or circumstances that the Minister has determined under sub-section (3) of section 8 shall not be incorporated in that economic policy statement.

(2) ¹³[The statement under clause (a) of sub-section (1) shall additionally provide for–]¹³

(a) the integrity of the disclosures contained in the economic policy statements;

(b) the consistency with the requirements of this Act of the information contained in the economic policy statements; and

(c) the omission from the economic policy statement of any decision or circumstance specified in subsection (3) of section 8.

11. Measures for fiscal transparency.
(1) The Federal Government shall take appropriate measures to ensure greater transparency in its fiscal operations in public interest and minimize, as far as practicable, secrecy in the preparation of the annual budget.

(2) In particular and without prejudice to the generality of the provisions of sub-section (1), the Federal Government shall, at the time of presentation of annual budget, disclose in a statement as may be prescribed,—

(a) the significant changes in the accounting standards, definitions, policies and practices affecting, or likely to affect, the computation of prescribed fiscal indicators; and

(b) as far as practicable and consistent with protection of public interest, all guarantees including those for rupee lending, bonds, rates of return, output purchase agreement, exchange risk, claims, and commitments made by the Federal Government having potential budgetary implications, including revenue demands raised but not realized and liability in respect of major works and contracts.

¹⁴[CHAPTER IV
DEBT MANAGEMENT OFFICE]¹⁴

¹⁴[12. Establishment of Debt management office.
(1) Within sixty days of the commencement of the Fiscal Responsibility and Debt Limitation (Amendment) Act, 2022, the Federal Government shall, by notification in the official Gazette, establish an office to be known as debt management office, consisting of ¹⁵[executives including a director general and as many directors as may be determined by the committee referred to in sub-section (5)]¹⁵. Directors shall report to the director general and the director general shall report to the Secretary, Finance Division.

¹⁶[(2) The director general and the directors shall be appointed on contract basis for a term of three years on the basis of eligibly criteria including academic, professional qualifications and experience as may be prescribed. The contract may be extended subject to performance evaluation:]¹⁶

Provided that an individual shall not hold office of director general or director for more than three consecutive terms.

(3) The director general or a director may be removed from office by the Federal Government, if –

(a) on an inquiry, made in the prescribed manner, he is found incapable of performing the functions of his office by reason of mental or physical incapacity or has been found guilty of misconduct; or

(b) on the basis of performance evaluation carried out by a committee consisting of Finance Minister and Finance Secretary, it is concluded that his services are no longer required and his contract needs to be terminated.

(4) The terms and conditions of service of the director general and directors of the Office shall be such as may be prescribed.

(5) The size, organizational and governance structure, terms and conditions of service of the staff including senior management, performance evaluation, framework budget and all other matters incidental to the functioning of the office shall be as may be prescribed. The committee consisting of the Finance Minister and the Finance Secretary shall have the powers to make policies for effective functioning of the office.]¹⁴

13. Functions of the Office.
(1) The Office shall perform such functions as are specified in sub-section (2) or as may be prescribed from time to time.

(2) Without prejudice to the generality of the foregoing provision, the Office shall—

¹⁷[(a) prepare medium-term debt management strategy, in consultation with the relevant stakeholders and finalize with prior approval of Minister of Finance, in-line with the medium term budgetary framework;]¹⁷

(b) monitor and evaluate external and domestic borrowing strategies and provide policy advice on an appropriate mix of external borrowing from all sources;

(c) monitor the nominal and real costs of external and domestic borrowing and suggest ways to contain these costs;

(d) analyze the foreign currency exposure of Pakistan’s external debt, including foreign exchange obligations to residents and providing a framework for foreign exchange risk management;

(e) provide consistent and authenticated information on public and external debt and Government guarantees including total guarantees outstanding;

(f) prepare a debt policy statement on an annual basis on trends in public and external debt and implementing adopted debt reduction goals as well as suggesting adjustments in the Federal Government’s overall debt strategy;

(g) provide leadership on debt data questions and ensure compliance with agreed reporting requirements; ¹⁸[*]¹⁸

¹⁸[(h) maintain consistent and authenticated record of public debt and Government guarantees office may, outsource the record keeping function of any segment of public debt to other Government agencies such as State Bank of Pakistan, Central Directorate of National Savings, Economic Affairs Division etc. for reasons of efficiency and practicality. Such outsourcing arrangements, if any, shall be made through service level agreements between the office and the corresponding agency clearly identifying the roles and responsibilities of the panties;]¹⁸

¹⁸[(i) prepare animal debt review containing analysis of the debt management operations during the last completed financial year and assessment of the progress against the medium-term debt management strategy in-line with the long-term priorities of the Federal Government. The review shall be prepared in consultation with the relevant stakeholders and finalized with prior approval of Finance Secretary and published within three months of the close office financial year;

(j) prepare annual borrowing plan, in consultation with the relevant stakeholders and finalize with prior approval of the Federal Government, in line with the medium-term debt strategy. The plan shall be published along with the budget documents;

(k) raise domestic debt through domestic government securities, bank loans or any other domestic borrowing instruments other than those issued by the Central Directorate of National Savings (CDNS);

(l) formulate and implement a process for raising domestic debt through public auctions of domestic government securities. The process shall include the setting of auction targets, conducting the auctions and making and executing the borrowing decisions such as the borrowing rates, amount of borrowing through various instruments and other incidental matters. The process shall be finalized and modified from time to time, if necessary, with prior approval of Finance Secretary;

(m) formulate guidelines, in consultation with the relevant stakeholders and issue with the prior approval of Finance Secretary, for CDNS or any other government agency engaged in domestic borrowings;

(n) raise external debt through commercial sources including debt securities such as bonds, sukuks, bank loans or any other commercial borrowing instruments;

(o) coordinate with the external finance wing of the Finance Division to record and analyze any debt raised for balance of payments;

(p) coordinate with Economic Affairs Division in raising external debt through multilateral and bilateral sources and provide advice to Economic Affair Division on financial terms and conditions, debt recording or any other matter pertaining to external debt;

(q) propose policy guidelines to Finance Division and Economic Affairs Division regarding raising of external debt through multilateral and bilateral sources;

(r) prepare a comprehensive debt bulletin containing information regarding debt stock, debt operations during the period under consideration the sources of change in debt stock on semi-annual basis, The debt bulletin shall be finalized with prior approval of Finance Secretary and published within three months of the close or each quarter;

(s) preparation and implementation of process, prepared in consultation with relevant stakeholders and finalized with prior approval of the Federal Government, for issuance, management, valuation, budgeting, finding, allocation, monitoring of government guarantees including the guarantees relating to public private partnerships;

(t) advise the Finance Division in evaluation of requests for government guarantees made by state owned entities;

(u) act as custodian of all guarantees issued by the Federal Government in terms of recording and analysis; and

(v) act as the investor relations office of Finance Division in matters pertaining to public debt including communication of debt management strategy to financial market participants; obtaining the feedback of the participants regarding the debt management strategy, modification of existing debt instruments, introduction of new debt instruments etc.; and responding to queries of the participants without disclosing confidential information.]¹⁸

(3) ¹⁹[* * * * * * *]¹⁹

CHAPTER V
MISCELLANEOUS PROVISIONS

14. Publication and access of statements.
(1) The ²⁰[Federal Government]²⁰ shall, in respect of every economic policy statement referred to in section 4, arrange for publication in the official Gazette a notice-

(a) indicating, where the statement is published in advance of being laid before the National Assembly, that the statement has been published; and

(b) specifying a place at which copies of the statement are available for public free of charge.

²⁰[(2) The statement published under sub-section (1) shall, within fifteen days of the publication, be posted on website of the Federal Government.]²⁰

15. Indemnity.
No suit, prosecution or other legal proceedings shall lie against the Federal Government or any office of the Government for anything which is in good faith done or intended to be done under this Act or the Rules made thereunder.

16. Application of other laws not barred.
The provisions of this Act shall be in addition, to and not in derogation of, any other law for the time being in force.

17. Power to make rules.
(1) The Federal Government may, by notification in the Official Gazette, make rules for carrying out the purposes of this Act.

(2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for all, or any of, the following matters, namely:—

(a) the forms of all the economic policy statements specified in section 4;

(b) the smooth functioning of the Office; and

(c) any other matter which is required to be, or may be, prescribed.

18. Removal of difficulties.
If any difficulty arises in giving effect to the provisiortis of the Act, the Federal Government may, by an Order published in the Official Gazette, make such provisions not inconsistent with the provisions of the Act, as may appear to be necessary for removing the difficulty:

Provided that no Order shall be made under this section after the expiry of two years from the commencement of this Act.

(2) Every Order made under subsection (1) shall, as soon as may be, cause to be laid before the National Assembly.