Public debt up 13.89pc to Rs27.574 trillion in eight months

KARACHI: Pakistan’s public debt rose 13.89 percent to Rs27.574 trillion in the first eight months of fiscal year 2018/19, the central bank data revealed on Friday as the government tries to cope with strains on its finances and bridge its growing budget deficit.

Public debt stood at Rs24.212 trillion at the end of June 2018. Fresh public debt increased to Rs22.906 trillion till the end of February last year.

The economy is struggling from severe pressure on its public finances. The government borrowed from banking sources such as banks and the SBP to finance budget deficit. Domestic debt accumulation went up on the back of higher financing needs and lower external funding. However, the increase in external debt was mainly due to the impact of exchange rate depreciation on its outstanding stock.

Domestic debt amounted to Rs18.343 trillion at the end of February 2019, compared with Rs16.416 trillion in June last year, the central bank data showed on its website.

Similarly, the demand for longer tenor instruments, fixed rate PIBs, also remained muted. The floating rate PIBs attracted higher amount of offers compared to fixed rate in all tenors combined; however, majority of the offers were placed at higher margins than the previously accepted cut-off.

The government mainly borrowed from the SBP to retire its debts held by the banks. Monetary tightening attracted banks to park money into risk-aversive government securities. Their investment pattern tilted towards short-term papers, indicating further policy rate hikes. The SBP raised its key policy rate by cumulative 500 basis since January 2017.

Budget deficit is set to reach 6.9 percent of gross domestic product in FY2019 from 6.6 percent recorded in the last fiscal year, the International Monetary Fund estimated. The government, however, kept its target for annual budget deficit at 6.3 percent that is above the 5.1 percent target set in September last year by a wide margin.

Fiscal slippages are emerging from both sides — stunted revenue collection and expenditure overrun. The SBP data showed that foreign debt stood at Rs9.231 trillion at the end of February FY19, compared with Rs7.795 trillion in June FY18.

The budget deficit rose to 2.7 percent of gross domestic product in the first half of the current fiscal year from 2.3 percent a year ago. The current account deficit has narrowed down, but remains high. The SBP’s foreign exchange reserves gradually recovered to $10.492 billion as of March 29 due to increase in Chinese inflows. Nonetheless, the reserves remain below the standard adequacy levels (equal to three months of imports cover).