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June 13, 2019

Public debt surges 16pc to Rs28 trillion in 10 months


June 13, 2019

KARACHI: Pakistan’s public debt surged by 16 percent or Rs3.867 trillion in 10 months of the current fiscal year, the central bank’s data showed on Wednesday, as financing of hefty budget deficit and rupee devaluation accumulated much of this debt.

Total public debt stood at Rs28.079 trillion at the end of April 2019. It had amounted to Rs24.212 till end June last year.

Domestic debt, which is obtained to fund the budget deficit and provide lending support to the development related projects, increased to Rs18.529 trillion at the end of April from Rs16.416 trillion in June 2018. The decline in tax revenue and higher current expenditures due to interest payments and security spending drove up the budget deficit to five percent of gross domestic product during July-March FY19. The country’s external debt rose to Rs9.550 trillion from Rs7.759 trillion.

Borrowing from commercial sources (foreign commercial banks and Eurobonds/Sukuks) has relatively increased during the last few years; however, external public debt still largely comprises multilateral and bilateral sources.

Analysts said the government’s revenue mobilisation target for the next fiscal year seems overly ambitious.

“The 9MFY19 fiscal deficit of five percent exceeds our year’s target of 4.9 percent. The addition of debt obligations in Q4FY19, make it likely that the deficit surpasses 7 percent, again in line with our expectations,” said an analyst at Taurus Securities.

“Going forward, the IMF s only official statement, following our staff-level agreement, explicitly mentions a primary deficit target (0.6 percent of GDP) for FY20 which we are poised to miss.”

The shortfall in foreign exchange reserves, which contributed to sharp rupee devaluation and rising inflationary pressures, leading to a tight monetary policy stance and a significant increase in domestic debt servicing cost, according to Pakistan Economic Survey for the fiscal year 2018/19 published early this week.

The devaluation of rupee against international currencies could increase the value of external public debt portfolio when converted into rupee for reporting purposes.

“It is evident from the fact that increase in external public debt contributed Rs1,900 billion to the public debt during first nine months of the ongoing fiscal year, while government borrowing for financing of fiscal deficit from external sources was Rs524 billion during the said period,” the Economic Survey stated.

“Over the medium term, government objective is to bring and maintain its public debt to GDP and debt service-to-revenue ratios to sustainable levels through a combination of greater revenue mobilisation, rationalisation of current expenditure and efficient/productive utilisation of debt. Government is committed to bring down public debt to GDP to 50 percent in fifteen years (2032/33) in accordance with the provision of Fiscal Responsibility and Debt Limitation Act,” it added.

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