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January 19, 2021

Public debt marginally rises to Rs35.8trln in July-Nov

Business

January 19, 2021

KARACHI: Public debt marginally increased two percent or Rs715 billion to Rs35.8 trillion during the five months to November due to low cost of borrowing, the central bank’s data showed on Monday.

Public debt amounted to Rs35.1 till June-end last year, according to the State Bank of Pakistan (SBP). The public debt has been growing at a slower pace of 1 to 2 percent since the start of this fiscal year.

The government accommodated a deficit budget to extend pandemic-related relief and to accelerate the pace of economic recovery, the SBP said in a latest report. “The debt management strategy during FY21 was centered primarily on reducing the borrowing cost, extending the maturity profile and improving the liquidity position of the government,” it said. “In this context, with the introduction of floating rate long-term instrument, the government has effectively deepened the domestic debt market.” The debt was Rs32.130 trillion by the end of November 2019.

The bulk of the public debt emanated from the domestic borrowing to finance the budget gap. The State Bank’s data revealed that domestic debt increased 3.5 percent to Rs24.1 trillion. External debt rose almost 1 percent to Rs11.711 trillion.

The budget deficit widened 1.1 percent to Rs484 billion in the first quarter of the current fiscal year, the ministry of finance reported. A major portion of the government domestic debt was sourced from the banking system. Within the banking system, the entire mobilisation came from scheduled banks as the government continued to retire the central bank’s debt.

Moreover, the government’s low appetite for external funding due to a surplus in the current account, the availability of multilateral funds on ongoing projects and relief on principal payments by G-20 countries under the debt service suspension initiative have helped in containing foreign debt accumulation at a higher pace.

Market participants are now keen to invest in long-term paper even in the low interest rate environment. Given the government’s commitment to avoid SBP borrowing, including rollovers and liquidity management has come to the forefront of the overall public debt sustainability, the SBP said.

To manage the expected constraints, the government had resorted to increasing its deposits with the banking system through fresh borrowings. This year, the government deposited an additional Rs74.2 billion with the banking system. Revaluation gains due to appreciation of the rupee against the dollar have also helped in checking the buildup of public debt.