External debt rises Rs1.3trln to Rs9trln till Jan

ISLAMABAD: Government’s external debt value increased Rs1.3 trillion to Rs9.096 trillion as of January 31 from Rs7.796 trillion in June-end due to rupee depreciation against the US dollar, the finance ministry said on Friday.

“It needs to be understood that out of this increase of Rs1,300 billion, around Rs1,100 billion or 85 percent is attributable to depreciation of Pak rupee against US dollar,” the ministry of finance said in a statement.

The ministry added that there was also an impact of increase in credit balance of the government with the banking system.

The central government’s external debt, in dollars term, increased to $65.8 billion at the end of January 2019 from $64.1 billion at the end of June 2018.

“Therefore, an increase of around $1.7 billion was recorded in central government external debt during the first seven months of current fiscal year compared with the increase of $5.9 billion during the same period last year,” the finance ministry said.

The central government’s external debt, in rupee terms amounting to $65.8 billion, was equivalent to Rs9.096 trillion at an exchange rate of Rs138.2553/dollar.

The ministry said rupee depreciation increased the rupee value of external debt, but did not add much to the foreign currency liability of the country during any particular fiscal year.

“Increase in credit balances of the government with the banking system has resulted in increase in domestic debt stock,” it added.

The finance ministry said the present government inherited several challenges on domestic and external front, which forced it to borrow to meet its social and development goals.

“Particularly, public debt to GDP ratio was 72.5 percent at end June 2018 as against threshold of 60 percent as stipulated under FRDL (Fiscal Responsibility And Debt Limitation) Act while federal fiscal deficit (excluding foreign grants) was 6.5 percent during 2017/18 against the threshold of 4 percent,” it added.

“Resultantly, existing debt obligations contracted by the previous governments consumed around 37 percent of government revenues during 2017/18. Since major chunk of revenue is consumed by debt servicing, additional borrowing is required to meet other current and development expenditure.”

The ministry said increase in imports pushed the current account deficit to a historic level of around $19 billion in FY2018, which exerted pressure on foreign exchange reserves as well as on rupee, which depreciated by around 32 percent during the last one and half year.

“This has not only contributed towards fueling the inflation but has also increased the stock of external public debt significantly.”

The finance ministry said the government has taken initiatives to expedite institutional reform and promote austerity to reduce non-development and non-productive spending. “All these measures are expected to reduce the debt burden of the country in the medium term.”