Pakistan’s debt, liabilities surge to Rs44.9trln in 2020

KARACHI: Pakistan’s total debt and liabilities increased 9.9 percent to Rs44.9 trillion during the last year, the central bank’s data showed on Thursday, as the government's fiscal position is stressed amid lower tax revenue collection.

The debt and liabilities stood at Rs40.9 trillion till December 2019.

Brokerage BMA Capital said the government’s fiscal response is limited by burgeoning debt ratios and narrow tax base with the public debt ratio exceeding 81 percent of GDP.

“Fiscal resources look strained but the performance has been good so far,” BMA Capital said in a report.

Debt and liabilities expanded Rs424 billion or 0.95 percent in the six months. The overall debt and liabilities recorded at Rs44.554 trillion till end-June 2020.

Despite constrained fiscal space and swelling debt ratios, the government rolled out Rs1.2 trillion (4 percent of GDP) of fiscal package to support the economy hit by coronavirus lockdown. Along with monetary stimulus in place, this provided the much-needed boost to the industrial sector which is evident from improvements in the large-scale manufacturing.

“Fiscal lever is still unavailable for the country given the high debt burden, weak tax collection, high circular debt stock and structural problems in the overall fiscal setup,” said the BMA Capital.

The SBP’s data showed that the country’s total debt increased 11 percent to Rs42.9 trillion at the end of December 2020 from Rs38.676 trillion a year earlier. The liabilities fell 10 percent to Rs2 trillion.

The government domestic debt rose to Rs24.3 trillion as of December 2020 from Rs21.676 trillion a year ago. The domestic debt of public sector enterprises increased to Rs1.4 trillion from Rs1.3 trillion. The government’s external debt stood at Rs17.1 trillion in December 2020 compared with Rs15.6 billion in the same period of the previous year.

The debt of the government to the International Monetary Fund rose to Rs1.1 trillion from Rs1 trillion.

The International Monetary Fund said Pakistan’s fiscal strategy remains anchored by the sustainable primary deficit of FY2021 budget and allows for higher-than-expected COVID-related and social spending to minimise the short-term impact on growth and the most vulnerable.

“The targets are supported by careful spending management and revenue measures, including reforms of corporate taxation to make it fairer and more transparent,” it said in a report. “The power sector’s strategy aims at financial viability, through management improvements, cost reductions, and adjustments in tariffs and subsidies calibrated to attenuate social and sectoral impacts.”

The government accommodated a deficit budget and a rise in public debt for FY2021 in order to extend pandemic-related relief and to accelerate the pace of economic recovery, the SBP said in a first quarterly report on the State of Economy for FY2021.

“Therefore, 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,” IMF said.

Moreover, the government’s low appetite for external funding due to a surplus in the current account, the availability of multilateral funds on on-going projects and relief on principal payments by G-20 countries under the Debt Service Suspension Initiative have helped contain foreign debt accumulation at a higher pace.