Islamabad:
Public debt has risen to a new record of RS80.5 billion at the end of June, an addition of RS25.4 billion per day, breaking an act of Parliament and further weakening the ability of government debt, revealed official statistics.
The State Bank of Pakistan (SBP) has published the debt bulletin for fiscal year 2024-25, which showed that public debt increased both in absolute terms and in relation to the size of the economy, a deadly combination that underlines the highly unsustainable indebtedness of the country.
At the end of June, gross public debt increased to RS80.5 billion, RS9.3 billion or 13% higher than the load in the previous fiscal year, according to the Central Bank debt bulletin. On average, the Government added RS25.4 billion every day during fiscal year 2015. The report declared that in terms of the size of the economy, gross public debt increased from 67.8% of GDP to 70.2%. According to the law of limitation of fiscal responsibility and debt, the government is obliged to reduce debt by 0.5 to 0.75% of GDP each year until it reaches 50% by 2032-33. However, the coalition government has violated the law.
The high indebtedness has left little space to spend in productive sectors of the economy, with almost half of the budget consumed by interest payments. Despite this, there is still a strong desire in official circles to spend more on mega projects, particularly those that have political advantages due to the pressure of the partners of the coalition.
All inclusive, the total debt and liabilities of Pakistan increased to RS94.2 billion by the end of June, equal to 82.1% of GDP, according to the Central Bank.
The growing burden of debt in absolute terms and GDP is also badly reflected in the International Monetary Fund (IMF), which has not been able to guarantee sustainable fiscal discipline. This higher debt limit than statutory indicates that Pakistan’s debt load is unsustainable. However, the IMF continues to declare that it is sustainable to avoid the need for an immediate restructuring of national and foreign debt. The significant increase in public debt was mainly due to the financing of the federal fiscal deficit, with interest expenses an important component. As a result, Pakistan’s financing requirements remain at unsustainable levels, with a variety between 20% and 23% of GDP. For a developing country such as Pakistan, the financing needs of 15% of GDP are considered manageable.
The Central Bank report showed that the government’s internal debt increased from RS47.2 billion to RS54.5 billion in a fiscal year, an increase of RS7.3 billion or 15.5%. Pakistan’s domestic debt grew three times faster than economy and inflation. Government’s external debt increased from RS21.8 billion to RS23.4 billion, a jump from RS1.7 billion, despite the fact that the local currency remains largely stable.
Pakistan’s external debt is mainly obtained from bilateral and multilateral concessional sources. However, the growing participation of short -term debt in recent years raises risks for the sustainability of debt due to high risks of refinancing, further increasing gross financing needs. Within the external debt portfolio, the fixed rate debt represents approximately two thirds of the total external debt.
Pakistan’s fiscal position always remains vulnerable to clashes, and the country currently faces one of the worst floods in its history that will have implications both in the main balance and in public debt.
A report from the Ministry of Finance stated that due to the limited fiscal space, a sudden change could not be ruled out in the primary balance. If a shock pushes the primary deficit near historical levels, the debt / GDP ratio will exceed 70%reference, risking even more debt sustainability, according to the report of the Debt Office last year.
The Central Bank report also indicated that IMF’s debt increased by 13% to RS2.63 billion for June this year. Pakistan is currently taking advantage of a IMF rescue package of $ 7 billion, the 25th program, aimed at guaranteeing fiscal and external stability.
The high indebtedness has resulted in a very high debt service costs. The SBP said the country spent RS13.2 billion on the reimbursement of mature loans and interest costs in the last fiscal year, an increase of 10% or RS1.2 billion compared to the previous year. Interest payments alone consumed RS9.5 billion in the last fiscal year. Pakistan also paid RS162 billion, or $ 570 million, in interest to the IMF during fiscal year 2015.
In general, in dollars, Pakistan’s external debt and liabilities increased to $ 135 billion for June, with an addition of $ 4 billion in a fiscal year. Compared to previous years, the external debt growth rate was slower due to the decision of the Central Bank to buy more than $ 8 billion in the local market.
