Fiscal Responsibility: A Critical Analysis of FRDL (2005) Pakistan

The economic future of a nation largely depends on the way fiscal responsibility is practiced. Fiscal responsibility is critical for a nation to remain prosperous and stronger in future. At least for the last two decades poor/weak fiscal responsibility is being practiced in Pakistan as the fiscal deficit for the last two decades remained more than five percent of GDP. The persistent fiscal deficit resulted in the increased debt burden both in terms of internal as well as external debt and interest payments. In 2001-02 Finance Minister, Mr Shaukat Aziz stated that there is a need to promulgate fiscal responsibility law in the country. The law was promulgated as “Fiscal Responsibility and Debt Management Act-2005”. The objective of the paper is to critically evaluate FRDL-2005, with reference to four major clauses/conditions laid down for restoration of fiscal discipline and also see the extent of implementation of these conditions. The analysis indicates that the act is prepared more to meet the constitutional provision rather than the economic realities of the country and for that reasons no targets has been set for reduction in fiscal deficit which is a source of concern for fiscal policy-maker. The provincial governments are not in the purview of the act. The targets laid for debt reduction are not realistic. The act did not put any restriction on federal government borrowing from the SBP. The paper suggests reformulation of FRDL-2005 on the economic realities of the country and also fiscal responsibility laws for the provincial governments so as to achieve the target of “rest rotation of fiscal discipline in the country”.