Public debt increases to Rs67.8 trillion in 11MFY2024

KARACHI: Pakistan’s government debt rose to Rs67.8 trillion in the 11 months of the fiscal year 2024, ending on June 30 as the government borrowed a large amount of money to cover its growing spending needs due to low revenue, the central bank’s data showed on Friday.

From July to May FY2024, the government added Rs6.976 trillion, or 11.46 per cent, to the total debt. The central government debt increased by 15 per cent year-on-year in May 2024. The debt saw a 3.0 percent increase from the previous month, rising from Rs66.1 trillion to Rs67.8 trillion.

Naturally, the government’s worsening financial situation is reflected in the jump in borrowing. Nearly all economic problems stem from low revenue and rising expenditure ratios to gross domestic product.

The government’s substantial budget deficit, maturing debt repayment, and growing interest charges forced it to rely heavily on domestic borrowings to fund its budgetary requirements. The government generally spends more money than it takes in through taxes. To fill this shortfall, it takes out a loan, which it must repay at an unprecedentedly high rate of interest.

The policy rate was lowered last month for the first time in four years as a result of the beginning of a decrease in inflation amid tight policies and slow growth. On June 10, the State Bank of Pakistan cut its benchmark interest rate by 150 basis points, to 20.5 per cent.

A major crowding out of private sector credit occurred as a result of the increased credit to the government.In July-May FY24, the government’s domestic debt increased by 19 per cent to Rs46.2 trillion. During May, there was a monthly increase in debt of 4 per cent. On a yearly basis, it increased by 25 per cent.

A decline in foreign debt was shown by the SBP data, which is encouraging for the country’s balance of payments. The SBP issued the latest foreign exchange numbers on Thursday. It showed a $494 million weekly rise in reserves, totalling $9.39 billion as of June 28. In FY24, the SBP’s reserves rose by $5 billion. In the meantime, the government is trying to finalize the loan programme with the International Monetary Fund, and its team is scheduled to arrive next week.

In July-May FY24, the central government’s external debt decreased by 2.0 per cent to Rs21.6 trillion. Month over month, it stayed unchanged, while year over year, it fell by 1.0 per cent.

Whether Pakistan’s public debt is sustainable and can the government cut its fiscal deficit in FY24 are the two issues that need to be addressed.According to economists, the government can only reduce public debt by generating enough revenue to cover all of its non-interest expenses and even slightly more in order to display a primary balance surplus.

While things have improved from the previous year, several signs still suggest severe financial turmoil. The public debt to revenue, interest to revenue, debt servicing to exports, SBP forex reserves to external debt, SBP forex reserves to imports, and other ratios are examples of these indicators.Reducing the proportion of government debt to GDP is necessary to increase credit in the private sector.