Public debt up 1.28 percent to Rs35.5trln in July

KARACHI: Pakistan’s public debt increased by a marginal 1.28 percent or Rs450 billion in the first month of this fiscal year, mainly because of lower government borrowing amid improving budget deficit, the central bank data showed on Friday.

Total public debt increased to Rs35.555 trillion at the end of July 2020 from Rs35.105 trillion in June 2020.

It stood at Rs32.798 trillion at the end of July 2019.

The government’s domestic debt rose 0.4 percent to Rs23.391 trillion, while foreign debt increased 2.86 percent to Rs12.163 trillion.

A marginal increase in the government’s domestic borrowing requirements to fund the budget deficit and some improvement in the tax revenues helped the public debt to post a nominal growth in July.

The budget deficit remained at Rs440 billion or 0.9 percent of gross domestic product during the first two months (July-August) of the current fiscal year. The improvement in the budget deficit was due to increase in non-tax revenues, while tax revenue rose 1.8 percent to Rs587 billion.

The budget deficit is improving despite pressures from the novel coronavirus pandemic against the general consensus. The deficit for the last fiscal year was lower than the previous fiscal and the increase in public debt was contained to around 1 percent of the GDP.

The measures taken by the government to ensure a primary surplus in the first nine months of FY2020, helped provide fiscal space to respond to the COVID-19 outbreak, the State Bank of Pakistan (SBP) said in its September monetary policy statement.

“During the first two months of FY21, in line with the gradual pick-up in economic activity, tax revenues returned to positive growth, averaging around 1.2 percent (YoY),” the SBP said.

“While far below pre-pandemic growth rates, this recovery in tax collections represents an encouraging turnaround from the double-digit reduction observed during the last quarter of FY20, although risks remain around achieving the revenue target. Federal PSDP-related outlays almost doubled during July-August 2020 compared to the same period last year,” it added.

Earlier, the central bank, in its third quarterly report ‘The State of Pakistan’s Economy’, warned that the gross revenue target of Rs6.57 trillion for FY2021 would be difficult to achieve as it needed significant growth over FY2020 in a low economic activity environment.

It said the government policymakers would need to implement an effective debt management policy to contain the damage from the pandemic as it could lead to increased fiscal deficit and public debt, given higher spending and plunging revenues.

Fiscal measures taken by the government are offering relief to businesses and households from the adverse economic impacts of the pandemic but it would simultaneously contribute to a larger fiscal deficit in the near term, according to the central bank’s report.