Reducing Government Debt Chapter 12: Reducing Government Debt The management of public debt is one of the principal responsibilities of the Federal Government. An important piece of legislation, the Federal Responsibility and Debt Limitation Act(FRDL) was passed by the National Assembly in 2005. The first task is to determine the extent to which the FRDL Act has been adhered to. The Act has the definition of Government debt as domestic plus external debt minus cash balances with the banking system. Public debt has a broader coverage and includes debt owed also to the IMF. The Chapter identifies the different types and sources of growth in the Government debt. This is followed by a statement on what should be the different components of a Debt Management Policy. 12.1. Level of Government debt in South Asian Countries The level of Government debt in major South Asian countries is given in Table 12.1. Pakistan had the second highest Government debt to GDP ratio after Sri Lanka in 2015. However, the biggest increase from 2015 to 2020 of over 20 percent of the GDP is observed in India, especially due to the impact of COVID-19 on the size of the Indian GDP and the budget deficit. Consequently, Pakistan has a lower Government debt to GDP ratio now than India and Sri Lanka. Table 12.1: Evolution of General Government Debt in South Asian Countries (% of GDP) Countries 2015 2020 Bangladesh 33.7 39.6 India 68.8 89.3 Nepal 25.5 39.2 Pakistan 72.1 79.7 Sri Lanka 78.5 98.3 Source: IMF 12.2. Key Targets in the FRDL Act This section presents the key targets in the FRDL Act and the extent to which different Governments have been able to adhere to these targets. Federal fiscal deficit was expected by the Act to be limited to 4 percent of the GDP during the three years, beginning from 2017-18. The outcome has been a Federal deficit of 6.5 percent of the GDP in 2017-18, 9.4 121