Public debt up 1.29 percent to Rs32.2trln in July-Oct

KARACHI: Pakistan’s public debt rose 1.29 percent to Rs32.197 trillion in the first four months of the current fiscal year from Rs31.786 trillion at the end of FY2019, the central bank’s data showed on Friday.

The State Bank of Pakistan’s (SBP) data showed that domestic debt increased 3.89 percent to Rs21.537 trillion at the end of October, while foreign debt decreased 3.58 percent to Rs10.659 trillion.

Debt accumulation was due to higher financing requirement by the government to fund the budget deficit. Below-than-desired revenue collection and increased interest payments on domestic debt amid tight monetary policy also led to the build-up of domestic debt.

The government continued to borrow from domestic sources to finance its current expenditures.

The pace of external debt accumulation slowed due to appreciation in the currency and reduction in the current account deficit, which narrowed 73.5 percent year-on-year to $1.5 billion in July-October FY2020. The rupee has appreciated 5.6 percent since June this year.

Budget deficit was 0.7 percent of GDP in the first quarter of this fiscal year. The government posted a primary surplus of Rs200 billion in July-September FY2020, although the International Monetary Fund (IMF) expected primary deficit at Rs102 billion in the first quarter.

The budget deficit was seen going down on increase in non-tax revenues and decline in development spending.

The IMF expects the budget deficit to be at 7.4 percent of gross domestic product in FY2020. Ratings agency Moody’s said the deficit would be at 8.6 percent as opposed to 7.1 percent estimated by the government in the budget for 2019/20. The SBP sees budget deficit to be in the range of 6.5 to 7.5 percent of GDP in FY2020.

The fiscal consolidation under 39-month IMF $6 billion extended fund facility is likely to improve the country’s debt sustainability over the medium-term.

Moody’s Investors Service said Pakistan’s fiscal strength has weakened with higher debt levels largely as a result of currency depreciation. However, it expected that the ongoing fiscal reforms, including through the IMF, would mitigate risks related to debt sustainability and government liquidity. Moody’s recently upgraded Pakistan’s outlook from negative to stable after more than a year.

The IMF expects Pakistan’s public debt could surge to 78.6 percent of gross domestic product in the current fiscal year.

The country’s debt vulnerabilities would remain upward if its debt-to-GDP ratio is not expected to fall below 70 percent of GDP, according to analysts.