Publication: Punjab Debt Sustainability Analysis
Date
2012-10
ISSN
Published
2012-10
Author(s)
Abstract
Punjab is Pakistan's most populous
and economically vibrant province. Its fiscal health,
therefore, is crucial to the fiscal stability and economic
development of Pakistan as a whole. By end-June 2011,
Punjab's outstanding debt stood at Rs. 413 billion, or
4.0 percent of Gross Subnational Domestic Product (GSDP).
The low debt level is perhaps not surprising given the
historical barriers to borrowing imposed at the federal
level. But this has changed profoundly with enactment of the
18th Constitutional Amendment which has allowed provinces to
borrow domestically and externally, subject to limits
imposed by National Economic Council (NEC). This change has
heightened the need to examine what Punjab owes and the
question of provincial debt sustainability in general. As
there is no threshold defined for subnational debt levels,
this sustainability analysis considers unsustainable fiscal
policies and borrowing strategy to be those that lead to an
explosive accumulation of debt such that it would jeopardize
the normal provision of services by the province. The
analysis projects the debt outlook through the fiscal years
2012 to 2021, using the Government of Punjab's current
Medium-Term Fiscal Framework (MTFF) as the base. The MTFF
for fiscal 2012 anticipates fiscal surpluses in medium term,
driven mainly by an improvement in provincial finances due
to a favorable Seventh National Finance Commission Award,
and thus concludes that the debt outlook is sustainable
through fiscal 2021: the debt-to-GSDP ratio gradually
declines over the next 10 years, to 1.2 percent, from 4.0
percent; the interest payments-to-revenues ratio decreases
to 0.9 percent, from 3.0 percent; while the debt
service-to-revenues ratio rises by a modest 0.3 percent to
3.3 percent. The analysis then explores some potential
vulnerability to economic and fiscal shocks. Punjab's
debt sustainability to be fairly robust to most shocks,
except when the individual shocks are combined. However, the
probability of combined shock remains very low.
Citation
“Manoel, Alvaro; Refaqat, Saadia; Onder, Harun; Ashraf, Mehwish. 2012. Punjab Debt Sustainability Analysis. World Bank Policy Paper Series on Pakistan;no. PK 13/12. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/17877 License: CC BY 3.0 IGO.”