Public debt surges 6.6pc in seven months, new govt faces fiscal crunch

KARACHI: The public debt rose 6.6 percent to Rs64.842 trillion in the first seven months of the fiscal year ending in June, central bank data showed on Tuesday, highlighting the fiscal challenges facing the new government.

The debt increased by Rs4 trillion from July to January, as the caretaker government that preceded the general election in February borrowed heavily to finance a widening budget deficit. 

The debt numbers suggest the challenges that the country’s newly elected government faces in reducing the size of large, costly borrowings amid a high budget deficit.

In January, the central government debt rose by 17.8 percent on a year-on-year basis. By the end of January 2023, the debt was Rs55.022 trillion. The debt, however, decreased by around 1 percent month-on-month in January 2024.

The country's new prime minister, Shehbaz Sharif, gave the go-ahead to expedite talks with the International Monetary Fund in light of the impending expiration of the $3 billion loan programme in April. A final tranche of $1.1 billion is yet to be released under the current stand-by arrangement.

Due to Pakistan's precarious external position, one of the top priorities for the newly formed coalition government will be obtaining funding from both bilateral and multilateral partners. The nation's foreign exchange reserves are far less than the $25 billion in external debt payments it must make in the next fiscal year, which begins in July.

The expanding debt burden brought on by the enormous financing needs of the cash-strapped nation is the core of its current economic woes.

“The main reason for the increase in debt is the funding requirement of the government," said Awais Ashraf, director of research at Akseer Research.

"However, in the month of January, government debt decreased by Rs346 billion due to lower translation of foreign debt on the back of the strengthening of the rupee against the dollar and partially because of foreign debt loan repayment.”

The State Bank of Pakistan's data showed that between July and January of FY2024, the domestic debt of the federal government grew by 9.8 percent to Rs42.626 trillion. As of January 2024, the debt had increased by 24.1 percent.

The external debt rose to Rs22.216 trillion as of January 31, 2024, up 7.4 percent from the previous year. Foreign debt increased by 0.8 percent in July-January FY2024.

As per the Ministry of Finance's monthly economic review and outlook released last month, Pakistan's unsustainable public debt position is the primary cause of the country's current economic difficulties. Since 2013, Pakistan has violated the Fiscal Responsibility & Debt Limitation Act (FRDL). The highest interest rates since 1972, declining state-owned enterprises’ profits, and poor tax collection all make it more difficult for the government to pay off the nation's debt.