Public debt rises 7.14 percent to Rs65.188 trillion in first half of FY2024

KARACHI: The government debt increased by 7.14 percent to Rs65.188 trillion in the first half of the current fiscal year, as the caretaker administration faced rising expenditure pressures and sluggish foreign inflows, central bank data showed on Monday.

The government debt rose by 27.67 percent year-on-year in December, from Rs51.058 trillion a year earlier, the State Bank of Pakistan (SBP) said in a report.

The caretaker government's growing expenditure demands, escalating mark-up payments (especially on domestic debt due to record-high interest rates), and a lack of foreign currency inflows were some of the factors that contributed to the increase in the central government debt from July to December 2023.

Despite an increase in tax receipts, the government's borrowing needs remained higher. Additionally, the foreign funding was sluggish throughout the first six months of FY2024. For this reason, the government continued taking loans from local banks.

The State Bank of Pakistan's data showed that between July and December of FY2024, the domestic debt of the federal government grew by 9.73 percent to Rs42.587 trillion. By the end of December 2023, the debt had increased by 28.35 percent.

The government's main way of obtaining bank loans is through the fortnightly auction of market treasury bills and conventional and Shariah-compliant bonds with local currency face value. The government borrows money to cover its budget deficit and repay its loans.

The SBP’s data showed that the external debt rose to Rs22.60 trillion as of December 31, 2023, up 26.4 percent from the previous year. Foreign debt increased by 2.5 percent in July-December FY2024.

Another SBP’s data revealed that Pakistan’s total debt and liabilities increased by 27.2 percent to Rs81.194 trillion in July-December FY2024. The country’s total debt increased by 27.1 percent to Rs77.909 trillion, while the total liabilities rose by 27.5 percent to Rs4.622 trillion in July-December FY2024.

In dollar terms, the country’s external debt increased by 4 percent to $131.2 billion in July-December FY2024.

The nation is dealing with extremely difficult macroeconomic conditions, including a precarious balance of payments as well as high inflation, according to the global rating agency Moody's.

The current International Monetary Fund loan programme will expire in March, so the government will need to negotiate a new one, Moody's said.

Even under the new programme, the government will be tested on its ability to adopt and implement reforms that may be politically unpopular but are necessary to raise revenues and improve macroeconomic conditions, Moody's added.

The country secured a short-term $3 billion bailout package from the IMF last summer.

Analysts believe the new government's immediate economic challenges would naturally be focused on securing macroeconomic stability by seamlessly moving into a fresh IMF lending programme after the present one ends. Reprofiling Pakistan's debt is yet another significant task for the new administration. The total external financing requirement for Pakistan for FY2024 is $24.5 billion, out of which most of the amount has already been paid or rolled over, according to the SBP.