Haunting challenge for govt: Debt, liabilities surge to staggering Rs44.3 trillion

ISLAMABAD: The Ministry of Finance on Tuesday conceded before the federal cabinet that the debt burden remains a major challenge as the total debt and liabilities had surged by Rs14.4 trillion in the last two years, up from Rs 29.9 trillion in June 2018 to a whooping Rs44.3 trillion by end of financial year (FY) 2020.

He said the foreign debt stood at $70.2 billion in June 2018 that ballooned to $78 billion by end June 2020, it went up by $7.8 billion in two years of PTI's rule, Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh informed the federal cabinet that met under chairmanship of PM Imran Khan on Tuesday in his hour-long presentation.

After a heated debate on the escalating debt burden, the Ministry of Finance gave its prescriptions by suggesting that the rising debt burden cannot be curtailed without improved GDP growth rate, vigilance in revenue collection and expenditures management. The GDP growth rate will help to jack up denominators, so debt to GDP ratio will be improved. The finance ministry made it crystal clear that without improving the tax revenues, the surge in debt burden cannot be restricted.

Briefing the cabinet about its roadmap, the Ministry of Finance said that they would switch from long-term borrowings and plans to reduce the short- term debt being raised by floating treasury bills from Rs4.1 trillion to Rs5.5 trillion by June 2021. The stock of the Pakistan Investment Bonds (PIBs) would jump from Rs12.4 trillion to Rs16.9 trillion within one year to replace short-term borrowings and meet the financing needs of this ongoing fiscal year 2020-21.

The Ministry of Finance also blamed devaluation of rupee against dollar while citing that out of the debt burden of Rs7.7 trillion during the fiscal year 2018-19, Rs 3.1 trillion were contributed by the exchange rate depreciation.

Explaining the reasons for the hike in public debt to Rs7.7 trillion in just one year, the Ministry of Finance said the primary deficit contributed to Rs1.5 trillion hike mainly because of less government income and non-interest expenditures, Rs 2.1 trillion due to interest payments as most of the debt was obtained by the previous regimes, Rs3.1 trillion hike in debt mainly because of flawed exchange rate adopted by the previous regime and Rs1 trillion increase because of buffer stock to place prudent cash management.

“The rising debt burden requires careful management that cannot be done without coordination across the government and lenders,” Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh informed the cabinet.

While briefing the cabinet on total debt and liabilities, Shaikh stated that it stood at Rs17 trillion in 2017, Rs29.9 trillion in FY 2018, Rs40.2 trillion in FY 2019 and Rs44.3 trillion in FY 2020.

This data shows that the total debt and liabilities increased by Rs10.3 trillion in financial year 2018-19 but the PTI led regime managed to curtail its rising trend at Rs4.1 trillion in its second year rule in 2019-20.

He stated that the public debt was hovering around Rs 25 trillion in 2018 that went up to Rs 32.7 trillion in FY 2019 but it was curtailed to Rs 36.4 trillion in FY2020.

The public debt went up by Rs7.7 trillion in FY2019 because of Rs1.5 trillion primary deficit, Rs 2.1 trillion as interest payment, Rs 3.1 trillion as devaluation effect and Rs 1 trillion as buffer stock raised by the government prior to signing of IMF program.

Comparing the performance of the last two years, the presentation showed that the public debt increased by Rs3.7 trillion in 2019-20 against Rs7.7 trillion in 2018-19, the primary deficit was curtailed at Rs 1 trillion in 2019-20 against Rs1.5 trillion in 2018-19 and the primary surplus was Rs 0.2 trillion up to March 2020 but this surplus was converted into deficit after eruption of COVID-19 pandemic.