Public debt up 5.14 percent to Rs33.421trln in July-Feb FY20

KARACHI: Pakistan’s public debt rose by 5.14 percent to Rs1.635 trillion in the eight months of the current fiscal year, mainly due to increase in domestic debt accumulation, the central bank data showed on Tuesday.

Public debt was Rs33.421 trillion at the end of February 2020, up from Rs31.786 trillion till end June 2019. Domestic debt increased 7.02 percent to Rs22.188 trillion at the end of February, while foreign debt rose slightly up 1.60 percent to Rs11.232 trillion.

The growth in Pakistan’s overall debt stock remains up driven primarily by the government’s weak fiscal position, shortfall in tax revenue, higher interest payments incurred by the government due to monetary tightening, and rise in expenditures.

Moreover, the increase in domestic debt in the period under review stemmed from long-term debt. The government relied heavily on the commercial banks’ expensive borrowing to meet its revenue-expenditure gap.

Analysts said the government, along with higher expenditures, is also likely to take a significant hit on its revenues because of the shutdown of industries and also due to lower aggregate demand amid coronavirus outbreak.

The Federal Board of Revenue (FBR) tax collection was short by Rs200 billion in March, 2020. Pakistan’s budget deficit is expected to shoot up to 9.0 percent of gross domestic product in FY20 and subsequently clock in at 8.0 percent of GDP in FY21.

“Such extended period of high fiscal deficits, in our opinion, will leave long lasting implications on the economy of Pakistan, where financing of these fiscal deficits will result in higher government debt and subsequent increase in interest payments which will further augment the fiscal deficit, higher inflation, which will in turn put pressure on the exchange rate and subsequently on the current account balance, crowding out of the private sector, which in turn will hurt the real economy of the country,” according to a brokerage report.

Analysts also said sharp depreciation in the domestic currency and pressure on the balance of payments could have negative implications for external debt in times ahead. However, the recent significant cut in interest rate is likely to help reduce the government’s cost of domestic debt.

Moody's Investors Services, in a latest report said Pakistan would see a marked weakening in debt metrics because of large gross borrowing needs that raise interest payments when borrowing costs rise, and/or narrow revenue bases that push fiscal deficits wider when interest payments rise.