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June 11, 2021

Rs13.05tr added to public debt in three years

June 11, 2021

ISLAMABAD: The PTI-led government has piled up Rs13.05 trillion debt on the country since it came into power in 2018 ballooning it to Rs38 trillion by end-March 2021. Thanks to Pakistani rupee appreciation of over 16 rupees since June 2020 against the US dollar which has muzzled the debt volume to some extent.

Pakistan’s total public debt (domestic and external) was at Rs24.95 trillion by end of fiscal year 2017/18 and now by end-March 2021, it has increased to Rs38 trillion. In first nine months of this outgoing fiscal, Rs1.61 trillion debt has been added, the Pakistan Economic Survey 2020/21 revealed on Thursday.

However, the survey says that during first nine months of the outgoing fiscal, the public debt increased by 1.6 trillion, but it is still much less than what was accumulated in same period of the last fiscal (Rs2.5 trillion).

During this government’s three-year rule, domestic debt increased by Rs9.136 trillion to Rs25.55 trillion and foreign debt increased by Rs3.917 trillion to Rs12.454 trillion now. The government however says that domestic debt profile has improved during the tenure of the current government, saying that short-term debt as percentage of total domestic debt has decreased to around 23 percent at end-March 2021 compared with 54 percent at end June 2018. No new borrowing has been made from the State Bank of Pakistan, rather it retired Rs569 billion debt of the central bank.

Public debt as percent of GDP stood at 79.7 percent by end-march 2021 against 87.6 percent of the total volume of the economy by end-June 2020. If we distribute this debt on the country’s total population which the survey says is 220 million, then every Pakistani becomes indebted by Rs172,727.

Comparing the performance of this government on the debt accumulation front with last two democratic governments, every successive government had piled up more debt than previous administration. Since 2008, public debt has increased by more than six times. In the same year, when General Pervaiz Musharraf left the government, total public debt was Rs6.127 trillion. While at the time of his controlling power in 1999, the debt was Rs2.94 trillion, depicting an increase of 108 percent (or Rs3.187 trillion) in his nine-year tenure.

During the PPP-led government in its five-year tenure in 2013, public debt rose to Rs14.29 trillion, making further addition of Rs8.16 trillion (or 133.2 percent) to country’s total public debt.

After that, Nawaz Sharif’s government in his five-year tenure further piled up the debt of Rs10.66 trillion on the nation and jacked it up to Rs24.95 trillion. Imran Khan’s government filed up 13 trillion of debt on the nation in less than three years.

Gross external loan disbursements were recorded at $7.724 billion during first nine months of 2020-21. Disbursements from multilateral sources amounted US$ 3.397 billion and accounted for 44 percent of the total disbursements. The main contributors were Asian Development Bank (ADB), World Bank and the IMF.

The disbursements from the IMF were part of ongoing EFF programme while inflows from ADB and World Bank were targeted towards energy, finance and infrastructure development and to address the pandemic repercussions. Bilateral sources contributed $1.207 billion or 16 percent in total disbursements. Out of this, SAFE Deposits from China amounted to $1.0 billion; and commercial loans contributed $3.120 billion or 40 percent in total disbursements. These commercial loans were mostly obtained to refinance the existing maturities while incremental flows were for balance of payments support.

On public debt servicing (paying interest and principal amount) government spent Rs2.104 trillion during first nine months of current fiscal year against the annual budgeted estimate of Rs2.946 trillion.

Domestic interest payments were recorded at Rs1.934 trillion that constituted around 92 percent of total debt servicing due to higher volume of domestic debt in total public debt portfolio.

External public debt repayments were recorded at $5,147 million during first nine months of current fiscal year compared with $5,537 million during the same period last year. This reduction in repayments is primarily due to DSSI initiative and no repayment of Eurobonds/Sukuks during the current fiscal year. Interest payments were recorded at $1,080 million during first nine months of current fiscal year as compared to $1,580 million during same period of preceding year. The factors which reduced the external interest servicing during the ongoing fiscal year were (i) significant reduction in global interest rates due to the pandemic which led to lower interest payments on floating rate external debt; and (ii) interest servicing deferment under the G-20 Debt Service Suspension Initiative (DSSI).

Pakistan is availing the DSSI for a period of 20 months (May 2020 - December 2021) which will help to defer the debt servicing impact to the tune of around $3.7 billion during this period.

Interest payments were recorded at $1.08 billion during first nine months of current fiscal year as compared to $1.580 billion during same period of preceding year. The factors which reduced the external interest servicing during the ongoing fiscal year were (i) significant reduction in global interest rates due to the pandemic which led to lower interest payments on floating rate external debt; and (ii) interest servicing deferment under DSSI.