Public debt rises to Rs20.807 trillion in May

KARACHI: Pakistan’s public debt increased by 11.38 percent against a year earlier to Rs20.807 trillion in May, the central bank’s data showed on Wednesday.

The debt stood at Rs18.681 trillion as of May 31, 2016. More than 70 percent of the rise in public debt came from domestic borrowing, while increase in external debt remained moderate due to revaluation gains and slightly higher debt repayments during the period.

Within domestic borrowing sources, the government continued to rely on bank borrowing to meet its funding requirements. Domestic debt surged to Rs15.044 trillion at the end of May from Rs13.428 trillion in the same period of the last year.  Analysts linked high public debt levels to increased development/security spending, widening budget deficit, lower tax and non-tax receipts, and sluggish foreign inflows.

In Pakistan, domestic debt influences the overall public debt as government’s dependence on the banking system to finance the budget deficit is much higher. It’s also interesting to note that the central bank is sharing the bulk of the burden of budgetary financing since the conclusion of the IMF-Extended Fund Facility in September last year.   

The State Bank’s figures showed that the composition of domestic debt saw a shift from long-term debt to short-term debt. Resultantly, the size of floating debt also went up during the period under review.

The short-term debt, including shorter tenor instruments mainly market treasury bills, rose to Rs6.867 trillion from Rs4.871 trillion a year ago. However, long-term debt saw a decline in build up, amounting to Rs8.177 trillion against Rs8.557 trillion in May 2016.       

The government borrowed Rs3.981 trillion from commercial banks through treasury bills as of May 31, compared with Rs2.509 trillion in the corresponding period of last year.   

The latest auction of t-bills indicated the banks’ reviving interest in government short-term securities. Against a target of Rs650 billion, the government raised Rs712 billion in a t-bill auction held on Wednesday.

However, the government appears to be less willing to borrow more via Pakistan Investment Bonds. The government borrowing through PIBs fell to Rs4.316 trillion in May.   

External debt, which includes the official and multilateral loans and the IMF assistance for budgetary support, surged to Rs5.762 trillion in May, compared with Rs5.253 trillion last year.

Analysts foresee the paces of public debt to remain up as the government continues to borrow cash from banks and external sources to narrow its budget gap.    

The government plans new borrowing of Rs3.750 trillion from the banks via sale of t-bills and PIBs in August-October period.

The IMF called for strengthening fiscal consolidation over the medium, in line with the Fiscal Responsibility and Debt Limitation Act, which is necessary to address debt-related vulnerabilities.