Public debt increases 9pc to Rs34.5trln in 11 months

KARACHI: Public debt rose 8.5 percent to Rs34.5 trillion in the 11 months to May as cash-strapped government continued to rely on borrowings to finance budget deficit, the central bank’s data showed.

Public debt increased by Rs2.7 trillion from Rs31.8 trillion recorded at June-end 2019. Of total debts, domestic debt surged 13.4 percent to Rs23.5 trillion at the end of May from Rs20.7 trillion till June-end.

While the government complied with zero borrowing from the central bank, it couldn’t resist borrowing from commercial banks and National Saving Schemes (NSS) to finance the budget deficit amid lower tax revenue collection. Weaker tax revenues also led to a surge in domestic debt in the period under review. External debt remained almost flat in July-May FY2020 due to rupee recovery.

“Pakistan’s fiscal accounts remained under intense pressure over the years owing to poor revenue collection and over run in current expenditures which caused a sharp increase in fiscal deficit in recent years,” am economic survey document said.

The government was estimating a fiscal deficit of 9.1 percent of gross domestic product for the last fiscal year. However, many analysts said the deficit would end up between 9-10 percent of GDP in FY2020.

The government has set a fiscal deficit target of 7 percent of GDP for FY2021 and a primary deficit of 0.5 percent of GDP. The proportion of debt held by the State Bank of Pakistan is expected to decline while the proportion of debt raised through long-term instruments is expected to improve further. Most of the domestic debt raised during July-May FY2020 was through medium-to-long-term government securities and NSS.

All of the net external debt accumulated during 11 months of current fiscal year was from multilateral and bilateral sources on concessional terms. The economic survey said interest expense is likely to remain significantly less than the budgeted amount in 2019/20 owing to re-profiling of short-term debt into long-term debt and sharp decline in cost of borrowing in longer tenors.

“Over the medium term, government objective is to reduce its gross financing needs through various measures mainly including better cash flow management through a treasury single account, lengthening of maturities in the domestic market keeping in view cost and risks trade-off, developing regular Islamic based lending program and avail maximum available concessional external financing from bilateral and multilateral development partners to benefit from concessional terms and conditions,” the survey document said.

The government also aims to bring and maintain its 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, according to the survey.