ISLAMABAD: Despite achieving reduction in debt path, the government has failed to comply with the overall reduction in total public debt envisaged under the Fiscal Responsibility and Debt Limitation Act approved with the consent of parliament.
Although, the government has failed to deliver what it had committed to parliament to achieve in terms of reduction in public debt mainly because of fiscal imbalance, it is yet to be seen how the parliament shows its muscles by raising questions to ascertain reasons behind this perpetual failure in achieving its envisaged limits to curtail the debt burden. The debt report of the Ministry of Finance shows that total public debt of the country stood at Rs71.2 trillion in FY2024 against Rs62.8 trillion in FY2023, going up by Rs8.34 trillion in a one-year period.
During FY2024, total public debt increased by 13 per cent to stand at Rs71.24 trillion in June 2024, out of which domestic debt was Rs47.16 trillion and external debt in rupee terms was hovering around Rs24.08 trillion. During Q1 FY2025, there was a marginal increase of 1.3 per cent in public debt to stand at Rs72.13 trillion. In terms of debt-to-GDP ratio, total public debt showed a decrease of 7.7 per cent, to stand at 67.2 per cent at end-June 2024 against 74.9 per cent of GDP in FY2023.
Total external debt continued to increase during Q1-FY2025, to stand at $88.7 billion as of September-end 2024. In terms of external debt composition, more than half of Pakistan’s external debt (56 per cent as of September 2024) is from multilateral development financial institutions, including the International Monetary Fund (IMF). Second major source of external debt is from bilateral partners, including the Paris Club, which has approximately 28 per cent share of external debt. Fourteen per cent of external debt is from commercial sources, 8 per cent from international bond issuances and 6 per cent from commercial banks.
During FY2024, the stock of external debt (in USD) witnessed a net increase of 3 per cent YoY, while the share of external debt in total public debt decreased from 38 per cent (June 2023) to 34 per cent (June 2024). Although the external debt exposure is still within the maximum limit of 40 per cent as envisaged in Medium Term Debt Strategy (MTDS), it remains sensitive to exchange rate movement.
According to Debt Policy Statement prepared by the Ministry of Finance for submission before the parliament, Section 3 of the Fiscal Responsibility and Debt Limitation Act (FRDLA) 2005 pertains to principals of sound fiscal and debt management, wherein the federal government has to take measures to reduce fiscal deficit (excluding grants) and ratio of total public debt to gross domestic product (GDP) and maintain it within certain prudent limits, which have been defined as debt-to-GDP ratio, of which 60 per cent was stipulated till FY2017-18, with reduction of 0.5 per cent every year till 2022-23 and 0.75 per cent every year till 2032-33 to reduce the ratio to 50 per cent and thereafter maintaining it at 50 per cent or less.
In September 2024, the total public debt stood at 67.2 per cent against the envisaged target under FRDLA of 61 per cent, so it missed out.
The debt report shows that the total public debt is on a declining trend. It stood at 73.9 per cent in FY2022 and 74.3 per cent in FY2023. In FY2024, the public debt to GDP ratio reduced and stood at 67.2 per cent of GDP. Total debt of the government in accordance with the definition of FRDLA stood at 61.4 per cent of GDP in FY2024 but the desired limit was fixed at 57 per cent, which missed out 4.4 per cent of GDP.
Total guarantees stood at Rs4.25 trillion or $15.3 billion till September 2024 against Rs3.38 trillion or $12.1 billion till end-June 2024.
During FY2024, the government issued new guarantees, including rollovers, amounting to Rs274 billion or 0.26 per cent of GDP, while the stock of guarantee stood at 4.1 per cent of GDP as of June-end 2024. During Q1-FY2025, only rollover of a single guarantee amounting to Rs50 billion was made.
Approximately, 70 per cent of the guarantees are issued for the power sector entities followed by commodity operations.
Increase in September 2024 from January 2024 is attributed to the inclusion of guarantees issued against commodity operation financing obtained by State-owned Enterprises -- Trading Corporation of Pakistan Limited and Pakistan Agricultural Storage & Services Corporation Limited -- which were mentioned separately in past reports.
