Public debt swells to Rs34.3trln in July-April

KARACHI: Public debt increased Rs2.5 trillion or 8 percent in 10 months of the current fiscal year on government borrowing to plug the spending and revenue gap, the central bank’s data showed on Tuesday.

The public debt stood at Rs34.3 trillion as of April 30, compared with Rs31.9 trillion as of June-end last year. External debt rose to Rs11.2 trillion from Rs11.1 trillion.

Surge in the pace of public debt was driven by government’s funding requirements amid widening fiscal deficit and decline in the value of the rupee against the dollar.

The budget deficit is likely to shot up to 9.2 percent of GDP in FY2020 due to implications of COVID-19 on both revenues and expenditures. Fiscal deficit was reported at 3.8 percent of GDP in the nine months of the current fiscal year.

Analysts said a large stimulus to mitigate the impact of coronavirus on the economy could increase the government borrowing need and hence lead to big budget deficit and public debt in the current fiscal year.

The government announced over one trillion rupees of stimulus to help fight over fallouts of lockdown following the coronavirus outbreak.

Even before the coronavirus crisis, the tax machinery struggled to mobilise revenue and tax targets were revised more than twice. The International Monetary Fund expected the country’s public finances to come under pressure due to decline in tax revenues.

Analysts expect high public debt would push budget deficit above the target in the new fiscal year “and meeting budgeted fiscal deficit target of 7.0 percent of GDP for FY21 looks far-fetched”.

Brokerage Optimus capital management in a report said the next year budget, announced last week, marks the end of a brief expansionary detour in the fourth quarter of current fiscal year to absorb the initial shock of COVID-19 pandemic.

“Constrained by high public indebtedness and IMF program requirements, the government is aiming for a primary fiscal deficit of 0.5 percent in FY21, sharply lower than an estimated 2.6 percent in FY20.”

Overall fiscal deficit target is set at 7.0 percent for FY21 versus 9.1 percent projected for FY20.

The brokerage said the targeted reduction in fiscal deficit is predicated on 19.4 percent growth in revenues and only 4.7 percent projected increase in expenditure from their respective revised estimates for FY20.

“However, except for higher levies on petroleum, new revenue measures are conspicuous by absence and achieving lofty tax targets seems entrusted to economic recovery and better tax administration.”

It said although fiscal policy is rarely entrenched in realism, the exceptional uncertainties of yet unrelenting COVID-19 pandemic make serial revisions to the next year’s budgetary estimates inevitable.