Public debt rises 12.7pc YoY in July, surges to Rs69.6tr

KARACHI: Government debt rose to Rs69.6 trillion in the first month of the fiscal year 2025, marking a 12.7 per cent increase from a year earlier, data from the State Bank of Pakistan (SBP) showed on Thursday.

The central government debt slightly increased by 1.0 per cent on a month-on-month basis. In June, the debt stood at Rs68.9 trillion.The surge in public debt is due to high gross financing needs, ongoing budget deficits, low revenue collection, and increased interest payments.

The government is borrowing more due to low revenue collection, inflation, and financial support given to public-sector enterprises that are not profitable. High interest rates on the government’s current debt have increased the cost of repaying that debt. As a result, new debt is often issued to cover the interest on old debt, leading to a net increase in the total debt.

In July, the total central government debt as a percentage of the gross domestic product fell to 66 per cent from 74 per cent a year ago. Analysts believe that while this reduction may indicate some recent improvements or adjustments, there are still underlying structural issues that are a cause for concern.

The government’s domestic debt increased by 22.2 per cent year-on-year to Rs47.7 trillion in July. The debt saw a 1.1 per cent increase on a month-on-month basis. The SBP’s data showed that the country’s external debt decreased by 3.7 per cent to Rs21.91 trillion in July.

A stable exchange rate and low credit ratings, which prevented international commercial banks from providing fresh loans to Pakistan, were the main reasons behind the decrease in foreign debt.

The Pakistan government is encountering challenges in obtaining final approval from the International Monetary Fund’s executive board for a new $7 billion loan programme. Reports indicate that the IMF has set a deadline for next week to secure rollovers from friendly countries, which is a prerequisite for the board’s decision.

The commencement of a monetary easing cycle may offer some relief to the government in terms of the cost of domestic debt servicing. Surveys conducted by various brokerage houses suggest that the SBP may cut interest rates by 100-150 basis points at its upcoming monetary policy meeting on September 12, driven by August’s single-digit inflation reading of 9.6 per cent.The SBP has already cut policy rates by 250 bps to 19.5 per cent in its previous two meetings.