Public debt jumps to Rs66.1 trillion in July-April

KARACHI: Pakistan's government debt rose to a whopping Rs66.1 trillion in the first ten months of the current fiscal year, the latest numbers showed on Friday, driven by growing spending needs and costly debt servicing due to higher interest rates.

According to State Bank of Pakistan (SBP) data, in July-April FY24, the government added Rs5.243 trillion or 9 per cent to the total debt, while it increased by 12.8 per cent year-on-year in April.By the end of April 2023, the debt stood at Rs58.6 trillion and slightly rose by 1.1 per cent month-on-month in April 2024. It amounted to Rs65.4 trillion in the previous month.

The spike in the debt burden showed that the rising cost of interest payments amid precarious finances is one of the major headaches of Prime Minister Muhammad Shehbaz Sharif's government. The budget for the fiscal year 2025, which the government is expected to unveil next week, will probably play a significant role in getting Pakistan closer to obtaining a new, longer-term bailout from the International Monetary Fund (IMF).

The SBP’s data showed that the federal government's domestic debt increased by 14.61 per cent to Rs44.5 trillion between July and April of FY2024. In April, the domestic debt increased by 21.7 per cent on an annual basis and by 2.4 per cent monthly.

The government's domestic debt load has increased due to a widening budget deficit, limited external financing, and rising interest rates, which are currently at a record 22 per cent.The Pakistan Business Council (PBA), in its latest study, said that the policy of maintaining a higher-than-needed policy rate for a protracted period has had substantial ramifications for public finances.

“With a large public debt overhang, Pakistan’s public finances have been in a Ponzi game for the past several years,” it said.With total public debt at over 700 per cent of government revenue, the associated annual debt servicing cost amounts to around 7 per cent of GDP, almost 60 per cent of government budgetary expenditure, and nearly 70 per cent of gross government revenue, it added.

“With the policy rate maintained at over 20 percent by SBP since June 2023, and core inflation (NFNE) declining rapidly to 13.1 percent by April 2024, it is obvious that the current implicit nominal anchor for monetary policy has imposed very substantial fiscal costs,” it noted.

“These are estimated at around 0.8 percent of GDP in additional debt servicing costs incurred between FY22 and April FY24, or Rs820 billion.” The government’s external debt fellby 1.9 per cent to Rs21.60 trillion in July-April FY2024. The foreign debt dropped by 1.5 per cent month-on-month and 2 per cent year-on-year in April.

Though the external debt declined slightly in July-April, the government’s main concern is still the high foreign debt repayments and limited financial inflows. The nation faces a $10 billion foreign debt payment due in June and July 2024, which is putting pressure on government officials to find loan rollovers and secure funding to make timely repayments.

The government is expected to place more emphasis on fiscal discipline than populist spending in the upcoming budget — likely to be in line with IMF demands and devoid of ‘significant’ public relief measures. It is expected that the upcoming budget will centre on initiatives aimed at broadening the tax base, thereby almost meeting revenue targets.

The Federal Board of Revenue (FBR) aims to broaden the tax base in the FY25 budget by targeting the untaxed sectors/industries and various approaches. The FBR's target for revenue collection is expected to be Rs11-12 trillion.

The government is likely to project the fiscal deficit for the next fiscal year is Rs9.3 trillion. The budget will aim at targeting a primary surplus of Rs500-700 billion or 0.4-0.5 per cent of the GDP.