Domestic debt up 6 percent to Rs15.766 trillion in July-November

KARACHI: Domestic debt rose six percent or one trillion rupees to Rs15.766 trillion in the first five months of the current fiscal year of 2017/18, the central bank’s data showed on Thursday.

Domestic debt amounted to Rs14.849 trillion by June-end last year, according to the State Bank of Pakistan (SBP).

The latest domestic debt was up 10.42 percent as compared to Rs14.278 trillion recorded till November last year.

The government is seen increasingly dependent on domestic sources of funds —the central bank and banks — to meet the need of public spending and debt repayments despite improvement in foreign inflows.

Pakistan raised $2.5 billion funds through issuing sukuk and Eurobond in the international market, while exports sector is also showing recovery and inflows on account of remittances and foreign direct investment also improved.

Analysts said the domestic borrowing remained high due to a growing budget deficit, emanating from imbalances in the government receipts and expenditures.

“Therefore, the financing requirements from the banks continued to go up,” an analyst said.

Fiscal deficit increased to 2.3 percent of GDP or Rs826 billion in the July-November period despite a two-digit growth in tax revenue during the period.

The growth mainly emanated from foreign local and foreign debt repayments of more than Rs600 billion in July-November.

The government’s key tax authority collected Rs1,303 billion during the first five months, up 20 percent over the same period a year earlier.

The budget deficit, in the current fiscal year, is expected to be higher than 5.8 percent of GDP recorded in last fiscal year, analysts said.

The central bank estimated the budget deficit at 5 to 6 percent of GDP during FY2018.

Government officials believed that budget deficit would swell to 5.4 percent of GDP for FY2018, but the finance ministry is trying to contain it at five percent.

The World Bank said Pakistan’s fiscal consolidation slowed in 2017 as a result of revenue shortfalls and increased government spending in Pakistan.

“Increasing contingent liabilities related to infrastructure projects, and slippages relating to upcoming elections and weak tax revenues could derail fiscal consolidation efforts,” the World Bank said in a recent report.

The government’s borrowing from SBP saw a reduction since the start of the current fiscal year.

Short-term debts accounted for majority of the government’s domestic debt.

The rise in short-tenor debt was in line with the government paying back long-term debt to the banks during the first five months.

The short-term debt rose to Rs7.943 trillion in November 2017 from Rs6.335 trillion a year ago. The long-term debt, however, marginally fell to Rs7.823 trillion in November 2017 compared with Rs7.942 trillion in November 2016.

“Domestic debt will continue to rise in the coming months and add fiscal strain to the economy,” an analyst added.