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H IDDEN DEBT
Notes 1. The most recent joint World Bank–IMF debt sustainability analyses for Afghanistan (IMF 2020a), Maldives (IMF 2020c), Pakistan (IMF 2020b), and Sri Lanka (IMF 2019a) assess these countries as being at high risk of debt distress. 2. Brazil’s federal government bailed out subnational governments in 1989, 1993, and 1997–2000 (Manoel, Garson, and Mora 2013). 3. Data are for the end of 2018 (RBI 2019a). 4. China’s subnational debt-to-GDP is similarly high (estimated at 20.6 percent), but it has a unitary system. 5. Data are for the end of June 2019 and are estimated by World Bank staff for this study. For more details, see the next section on Pakistan. 6. OECD-UCLG (2019, figure 7.3). Data are for 2016. 7. See Maldives (n.d.). 8. See https://presidency.gov.mv/Press/Article /22833. 9. Eleven states have been designated special category states because of their unique circumstances, such economic and infrastructural backwardness, and nonviable nature of state finances. The remaining 17 states are general category states. 10. Pakistan’s fiscal rule can also be suspended if social and poverty-reducing expenditures fall below 4.5 percent of GDP or if health and education spending fail to double in terms of percent of GDP over a 10-year period. 11. This estimate uses data from the latest available debt bulletin of each province except for Balochistan, for which data come from Government of Balochistan (2019). 12. Article 167, Clause (3) states, “A Province may not, without the consent of the Federal Government, raise any loan if there is still outstanding any part of a loan made to the Province by the Federal Government, or in respect of which guarantee has been given by the Federal Government; and consent under this clause may be granted subject to such conditions, if any, as the Federal Government may think fit to impose.” 13. Article 167, Clause (4) states, “A Province may raise domestic or international loan or give guarantees on the security of the Provincial Consolidated Fund within such limits and subject to such conditions as may be specified by the National Economic Council.”
14. This limit varies for each province according to its share of the national population. For Punjab and Khyber Pakhtunkhwa, for instance, borrowing limits are equal to PRs 143 billion and PRs 44 billion, respectively. 15. In Khyber Pakhtunkhwa and Balochistan as of the end of June 2019, all of the debt is on-lent by the central government. This arrangement exists in part because these state governments do not have a debt management strategy and hence cannot borrow on their own. 16. According to the latest Punjab debt bulletin, 90 percent of the net year-on-year growth in outstanding debt stock was due to rupee depreciation in the previous six months. 17. The Pakistani fiscal year runs from July 1 to June 30. 18. There are also discrepancies between debt stock recorded by the Ministry of Finance and the provincial financial statements in some cases. In Balochistan, for example, the latter understates the debt stock quite substantially. 19. This finding is based on discussions with staff at the Office of the Auditor General of Pakistan. 20. The government of Khyber Pakhtunkhwa, for example, owns 70 percent of the Bank of Khyber and would likely intervene in the case of a crisis. 21. This is a lower-bound estimate given that actual growth in salaries, pensions, and number of employees has been 3 percentage points to 4 percentage points higher than the assumed annual increases in the actuarial valuations. See Government of Punjab (2019, 55–56). 22. World Bank (2017b). 23. See Government of Khyber Pakhtunkhwa (2019). 24. In Sindh, for example, the government provided a sovereign guarantee of $700 million to the Thar coal power plant, which was inaugurated in April 2019. 25. S e e h t t p s : / / t r i b u n e . c o m . p k / s t o r y /2101536/2-pll-sngpl-tussle-threatens-derail -1200mw-project/. 26. See also Government of India (2017). 27. Guarantee reports induce a similar effect (see table 4C.4, col. 3). 28. See Government of India (2018). 29. This contrasts with today’s practice in Pakistani provinces. See, for example, World Bank (2017a). 30. See Baicker (2005); Lutz (2010); Litschig and Morrison (2013); Cascio, Gordon, and Reber
