Public debt increases 8.23pc to Rs37.99trln in 11 months

KARACHI: Pakistan’s public debt rose by Rs2.89 trillion or 8.23 percent in 11 months of the fiscal year ended June 30, the central bank data showed on Monday, due to increased government borrowing to meet the spending requirements during the coronavirus pandemic, and higher interest payments.

The central government’s debt stood at Rs37.997 trillion at the end of May 2021. The debt amounted to Rs35.107 trillion in the period ended June 2020.

The debt increased by 10.17 percent year-on-year in May. It was Rs34.489 trillion in the period ended May 31, 2020.

Fiscal Responsibility and Debt Limitation (FRDL) Act 2005 defines “Total Public Debt” as debt owed by the government (including federal government and provincial governments) serviced out of consolidated fund and debts owed to the International Monetary Fund.

Rise in public debt is largely driven by the government's domestic borrowing that has increased 11.95 percent to Rs26.065 trillion. Foreign debt was almost flat at Rs11.931 trillion.

SBP’s data showed that government securities such as the market treasury bills (MTBs), Pakistan Investment Bonds (PIBs), and Ijara Sukuk (Islamic bonds) remained the preferred choice of borrowing within domestic debt. The major portion of borrowing from domestic sources was carried out through medium- to long-term debt instruments.

Borrowing via PIBs rose to Rs14.323 trillion from Rs12.886 trillion. The government borrowed Rs6.659 trillion from banks through MTBs at the end of May 2021. These borrowings stood at Rs5.575 trillion at the end of June last year.

Higher markup payments have also resulted in an increase in the stock of public debt. The bulk of interest payments were financed through the issuance of new debt.

Interest expense for the government remains high, despite the fact that interest rates have come down sharply, that is mainly because of long-term government borrowings at higher rates via fixed rate PIBs.

External debt however stayed flat due to improvement in the balance of payments and appreciation of rupee. Analysts expect higher budget deficit, ambitious revenue target and increase in development spending to increase government borrowings from domestic and the external sources, hence further ballooning public debt this fiscal year.

Government has allocated Rs900 billion for the federal public sector development programme in FY2022, 38 percent up from last year. There is a need to contain the budget deficit, targeted at Rs3.420 trillion or 6.3 percent of GDP this fiscal year, compared with revised estimate of Rs3.195 trillion or 7 percent for FY2021.

Analysts predict the budget deficit to be in the range of 7.0-7.5 percent in FY2022, where part of the shortfall would be covered by cut in expenditures, both current and development. Primary deficit is expected to be in the range of 1.0-1.5 percent.

Government expects interest servicing to remain below the budgeted estimates in FY2021 primarily due to extension of G-20 Debt Service Suspension Initiative (DSSI) from January to June 2021, appreciation of rupee, and lower interest servicing on account of National Savings Schemes following discontinuation of prize bonds, according to Pakistan Economic Survey for FY2021 released last month.