Govt adds $7.8bln to debt, liabilities in 2 years

ISLAMABAD: The government’s direct borrowing for financing of its fiscal deficit amounted to $7.8 billion during the two years, finance ministry’s spokesperson said on Wednesday.

The spokesperson affirmed to the State Bank of Pakistan’s (SBP) figure of $17.6 billion increase in external debt and liabilities of the country during June 2018 and June 2020.

“The figure needs to be properly interpreted for a better understanding,” the spokesperson said in a statement.

The figure of external debt and liabilities consists external public debt, public sector entities’ (PSE) debt, foreign exchange liabilities of SBP, and private sector’s external debt.

The government borrowed $7.8 billion (44 percent of the increase) for financing of its fiscal deficit, out of the total increase of $ 17.6 billion in external debt and liabilities. “This amount was the actual borrowing of the present government during its first two years,” said the spokesperson. “These additional borrowings were from multilateral and bilateral development partners whereas portion of loans from commercial sources were repaid.”

Borrowings from multilateral and bilateral development partners were contracted on low cost and longer tenor, which contributed towards enhanced external public debt sustainability during the tenure of the present government.

Of the total, $4.8billion (27 percent of the increase) was on account of SBP’s foreign exchange liabilities. Therefore, it should not be interpreted as government’s Debt because it is offset by cash balances and liquid assets of SBP, said the spokesperson.

Private sector borrowed $2.9 billion (16 percent of the increase) from external sources, “which is a healthy sign indicating private sector’s capacity to borrow from abroad for domestic investments”. PSEs borrowed $2.2 billion (13 percent of the increase) for spending on their financing needs mostly related to development expenditure.

Pakistan is expected to post a modest growth during the current fiscal year as widening fiscal deficit and growing debt pose risks to its economic outlook, according to Institute of International Finance (IFF). The Washington-based global association of financial institutions said the economy could grow by 1.8 percent in FY2020/21 driven by some recovery in private consumption.

Growth contracted 0.7 percent during the last fiscal year, IFF said in its latest report.. Domestic demand declined two percent, while exports of goods and services increased 1.6 percent as compared with a decline of 7.3 percent in imports of goods and services.