Public debt rises to Rs36.537trln in July-Jan

KARACHI: Public debt rose 4.07 percent or Rs1.43 trillion at the end of January 2021 to Rs36.537 trillion, because of increased government’s financing requirements, central bank data showed on Friday.

It totaled Rs35.107 trillion in the period ended June 2020. The debt was Rs32.997 trillion at end-January 2020.

The State Bank’s data revealed that domestic debt increased 5.24 percent to Rs24.502 trillion. External debt rose almost 1.77 percent to Rs12.034 trillion.

The increase in the public debt largely came from the domestic borrowing to finance the budget gap.

The budget deficit shot up to Rs1.4 trillion during the first half (July-December) of the current fiscal year. The deficit as a percentage of GDP stood at 2.5 percent. The country witnessed 2.7 percent of deficit during the same period in 2018-19 — the first year under the PTI government.

A large part of the government domestic debt originated 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.

The government’s low appetite for external funding due to a surplus in the current account, revaluation gains due to appreciation of the rupee against the dollar, the availability of multilateral funds on on-going projects and relief on principal payments by G-20 countries under the Debt Service Suspension Initiative helped check the buildup of foreign debt.

The Federal Board of Revenue surpassed its collection target by Rs13 billion to Rs2.911 trillion in the first eight months of the current fiscal year.

Despite constrained fiscal space and swelling debt ratios, the government rolled out Rs1.2 trillion (4pc of GDP) of fiscal package to mitigate the negative impact of the coronavirus pandemic on the economy, a construction package; and incentives for the exports sector. 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 index.

Analysts say 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.